Toronto-Dominion Bank (TD.TO)

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.

US and Canadian financials had a big run and there is profit taking. TD-T was hurt more than others because of the scandal about sales pressures by employees. He would hold off. He only owns BNS-T and the rest of his bank holdings are US banks.

This group is best helped by rising interest rates. There was an inflection point in interest rates last June, which was ultimately a 30-year low, and over the next number of years we slowly see rates go higher. Given a choice of Canada versus the US, you may be in a better spot with US banks, which are very inexpensive. He would have a look at something like J.P. Morgan (JPM-N) which had a nice pullback in the last few days, or look at one of the investment banks like Morgan Stanley (MS-N). However, you will also be fine with this bank. (See Top Picks.)

This bank bore the brunt of the negative publicity on the CBC announcement. The reality is, this is a buying opportunity. It is now trading at a multiple that is less than the banking industry in general. Dividend yield of 3.6%. (Analysts’ price target is $71.50.)

If you liked this bank before the news broke, he doesn’t think anything has changed. What was revealed in the news was not positive, but he wouldn’t be surprised to see any “for-profit” organization that didn’t have a conflict of maximizing sales versus taking care customers. The question is, what kind of policy does the company have to prevent that conflict and to resolve it. According to TD’s official statement, they do have a strong policy, they do investigate it and they do take care of it. He would look at this as a buying opportunity.

Stumbled badly last week when they were implicated in aggressive sales tactics. He wouldn’t be surprised to see this situation roll out to the other banks as well. You have to look at the different business lines the banks are in. This has had a huge capital outlay initiating their position in the US market, that can have a long time to pay back to the current shareholders in Canada. He prefers Bank of Nova Scotia (BNS-T), Royal Bank (RY-T) and Bank of Commerce (CM-T).

Bank of America (BAC-N) or Toronto Dominion (TD-T)? He thinks the dip in the stock is a bit overdone, but could persist for a while, so there is time. This bank has US exposure, but there is going to be a bit of negative headline news regarding their sales practices. Canadian banks are not cheap, trading at 2X BV, compared to US banks at about 1.5X. Prefers J.P. Morgan (JPM-N), which is a bit more tilted to the investment banking side, and would see a bit more participation in the deregulation that he feels is coming. There is room for the Cdn$ to come down further.

Banks have 2 periods of seasonal strength, and we are just into one of them now. It runs from about the middle of March through until the reporting of their fiscal 2^nd quarter results, approximately the end of April. The stock has been hit in the last while, because of the controversy of bank employees being a little aggressive on marketing. That is a short-term factor. We are now into the period of seasonal strength. The recent weakness is probably an excellent buying opportunity.