Toronto-Dominion Bank (TD.TO)

(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.

His single largest holding. It’s been one of the best growth stories in an oligopolistic and very profitable Canadian banking sector. Banks have had a very strong run and this bank has a very strong overhang of sales practices investigation from a few weeks ago. That probably dampens the view in the very short term, but provides opportunity allowing you to accumulate on weakness.

The banks have been very steady returners for Canadian investors. TD-T had the sales scandal and sold off. He owns no banks but if he was looking to buy one, it would be either this or RY-T. This is a buying opportunity. It is well run and pays a nice dividend. TD-T is going to be fine. You might even add to it.

He is cautious on banks as they are starting to pull back. If we go through a period of uncertainty, all these stocks come back to where they broke out from, otherwise he is comfortable buying here.

Banks are still great deals relative to the market. There are sentiment issues which are tough to gauge. He would not sell right now. Dividends are great. The issue was with their retail business. They did not grow for 5 quarters in a row. He would wait a little bit. The sales issue with pressure on employees will be an overhang for some time. Around $63 it would be a buy.