Toronto-Dominion Bank (TD.TO)

The Home Capital (HCG-T) story has depressed the Canadian financials. Also, there have been misguided and misleading stories from the US which has affected Canadian financials. This is a good entry point for Canadian banks in general. They are back to their average multiples. They start reporting in a week or so, and the numbers are going to be good. (See Top Picks.)

January 66 Call Option. The price of this is below where the stock is actually trading. You have until January, and he would not exercise an option early. If you exercised the option, you would be giving up the time value which is part of the option’s price.

The recent problems of aggressive sales practices could also be said of the other Canadian banks, and he does not think it is a game changer, but would use it as a buying opportunity. A year or 2 from now, no one is going to be talking about it. This is a great business and it is well run.

The banks all have broken topping patterns and have created a neck line where there is some support. Somewhere around $60, this might become interesting. Technically you wait for it to hit the point and you wait for it to bounce off.

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.)