Toronto-Dominion Bank (TD.TO)

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.

He doesn’t have the slightest worry about the recent allegations made against this bank. Some of them are probably stretched, but don’t forget banks are profit engines, and are going to do whatever they can to upsell the clients on products and services. He has recently started buying this.

If he were going to buy a bank, it would probably be this. He doesn’t get the impression that this was a systemic problem, but even if it were, he doesn’t get the sense it would be worth taking $7 billion out of the bank’s market cap.

This dropped $3.25-$3.50 today. There was a report claiming employees were pressured to hit sales goals that could have breached the company’s ethics. Barclays says that they don’t think there will be repercussions. Any time these types of allegations come out, it certainly freezes investors in their tracks. This bank is a fantastic franchise. They have lots of compliance and corporate governance in place. If you are a 3-5 year investor, and you get a selloff like this, it is probably an opportunity. However, he wouldn’t add a full position today, but would probably add some today and look at adding some down the road.

He feels Canadian banks are fairly valued. This one is trading at about 13X forward earnings, a notch above historical levels. It is probably trading at 1.8-1.9X Price to book. Compared to the large US banks, some of the Canadian banks are a bit expensive. Within financials, he would probably look at some of the insurers at this time, because they are more leveraged to higher interest rates.

Has been somewhat disappointing in the last couple of quarters, particularly on the US side, and an area that is likely to come alive at some point. The move in the US to reduce regulations hampering US banks, should help this bank improve US profitability. Dividend yield of 3.48%. (Analysts’ price target is $72.)

He likes this bank, and would never sell it unless he thought it was completely overvalued or something material happened to it. The fire power of the banks has clearly been misunderstood by everybody on the street. This is the sweetest spot for Canadian banks in years. They are not expensive for what you are getting. (See Top Picks.)

As a group, he is not overly excited about Canadian banks. Prefers US banks, but owns a small position in this one. It has a very good ROE, and are able to compound the book rate at very high rate. Also, likes their US exposure. Very good capital markets franchise, a sector that he is very optimistic about. Trading at about 13X earnings which, over the long-term is a premium multiple, but with their growth profile, it makes sense to pay that premium.

Canadian banks are always a buy. They are benefiting from deregulation tailwinds south of the border. He would probably not sell. There is probably more to go even though they just hit a 52 week high. Buy, accumulate and use the DRIP plans.

The chances of them ever being taken over are very, very slim. The government is not about to allow one of the biggest banks in Canada to be taken over. All the Canadian banks have had a wonderful run.

The fastest grower among the large Canadian banks, growing earnings at 7.5% compound rate over the last 5 years. It tends to trade at a premium multiple to the rest of the group. Trading at about 13X earnings, a little above the bandwidth it has been trading at for the last 5 years. He likes that they have 35% of their business coming out of the US. That is an increasing proportion, because their US affiliate Ameritrade is in the process of acquiring Scottrade Financial.

This, along with the other Canadian banks, looks great. It has broken out. The sector might be a little overbought right now and it could pull back a bit, but he doesn’t think there is any danger of a massive pullback. Until that trend line breaks and takes out a low, continue to hold.

He has a preference for US banks, however this one does have a US presence. They have an opportunity to gain a lot of market share in the US. It’s a pretty good franchise and he likes it.

He looks at this as a US bank, as over 50% of their revenue comes from the US. He likes the US banking sector. This is a way of capitalizing on the US financial space, but by owning a Canadian bank, the dividend you receive qualifies for the dividend tax credit. Dividend yield of 3.23%. (Analysts’ price target is $68.39.)