Toronto-Dominion Bank (TD.TO)

Doesn’t own any banks, but if he had to own a bank, it would be this one. It is the most retail focused and maybe steadiest of the banks. He doesn’t think the allegations are a cause for concern that would trigger more downside.

TD-T vs. BNS-T. He has a small exposure to the Canadian banking sector, but is more exposed to the Canadian insurance sector. His preference is BNS-T because it has the smallest footprint in Canada. A lot of growth is dependent on capital markets. TD-T has a big US exposure and he likes that, but these are not his choice.

Toronto Dominion (TD-T) or Royal (RY-T)? This has made a huge push into the US, and have used a lot of capital to do that. Those kinds of moves take a long time before you earn a sufficient Return on Capital employed. A great bank and very well-run, but of all the banks, Royal is the benchmark in Canada, the most diversified and dominant in almost every area they participate in. There is not much to differentiate between the 2 yields. (See Top Picks.)

It has been difficult for this bank when the CBC report came out. Also, it didn’t help that the Wells Fargo had a situation as well. It is really difficult to quantify sentiment, and it has clearly been negative on this bank. This is a great franchise.

(A Top Pick Feb 22/16. Up 33.74%.)

This has come off, along with the other banks, based on the charges of overly aggressive branch selling, which he thinks was a tempest in a teapot. He likes the American economy better than the Canadian, and any bank with US exposure will be better off. This one has the lowest exposure to real estate in Canada. He is looking for a 10% growth rate, probably 4%-5% in dividends and 4%-5% in capital gain. Dividend yield of 3.66%. (Analysts’ price target is $71.50.)

Bought a $64 January 2018 Call option for $325. When do you take the stock? Do you take into account what you paid for the Call and add that to when you took the stock? One of the problems when you buy a Call option, you are buying a lot of time volatility. That time value will shrink to zero. You pull your trigger when you are at your maximum advantage, which is a whole other discussion which would take too much time to answer on this program.

Why are the banks consolidating or flat? In 2015, the earnings of the banks were fantastic. They were beating the estimates and they were increasing, but people were concerned and there was a decline in the bank shares of about 10%-15%. Last year, there was a massive run up. They were giving returns generally of about 30%, so a pause is in order. This is a great, long term hold.

He likes their positioning in the US. Thinks you can buy into any of the Canadian banks. The regulatory environment in Canada has been so good for so long. In his career, all the US banks have gone bankrupt at some point.

Enbridge (ENB-T), Toronto Dominion (TD-T) or split the money in half? This is a tough question, as he owns both. Both stocks have their merit. TD over the long run probably has the better story because of their large US franchise. However, Enbridge acquired Spectra. He would split the money and buy them both.

Ranks about #7 in terms of domestic deposits in the US. She likes this, because it has lagged the group year to date, and because of its very negative press about overselling, which she doesn’t think is ingrained in their corporate culture. Trading at a premium to historical average by about 1 multiple point higher. Trades at about 1.8 X PB, and its 10-year historical average is about 2X. generates an ROE of about 14%. Dividend yield of 3.6%. (Analysts’ price target is $71.50.)

A good bank. Got a lot of bad press recently because of high-pressure sales. All banks do that. The banks in Canada are very, very well-run machines. Although there are a lot of concerns about housing prices and how that could affect bank profits, banks are being as prudent as they possibly can be. Feels it is the shadow banking in Canada that bears the brunt of the risks. This has good exposure to the US. Feels the capital market component of the business will continue to struggle. We are seeing more US firms compete for large corporate underwriting investment banking in Canada. This has a good dividend yield. If you have a five-year view, you should be rewarded fairly well. Dividend yield of 3.6%.

The sales practice scandal was not nearly as bad as the scandal at Wells Fargo (WFC-N). This is one of the reasons they have done well over the last few years - because they have a good sales-oriented culture at TD-T. This is not more than a passing flurry.

Since the election, banks have really run on the pro-growth theme. However, recently there has been a break in trend. Right now, it doesn’t look like the financials are going to run away anywhere. The banks have had their run right now, so you don’t have to rush out and buy them. They’re pretty weak on a relative and absolute basis right now.

Any time you have Canadian bank shares fall in the way these fell, it is an opportunity to buy a quality name. Shares are trading at about 12.5X forward earnings, 1.85X Price to Book. A little expensive relative to the US banks.