Toronto-Dominion Bank (TD.TO)

Canadian Banks have been a great place to be for many years. The rate of change in the Canadian economy is likely to continue to slow as the impact of energy washes through the country. This bank has done a great job in building US assets, and their US presence is doing very, very well, but a lot of their business is in Canada. If the strong part you want to target is the US, then target a US bank. He would suggest Wells Fargo (WFC-N) which has a significant piece of the US mortgage industry. It has pulled back, but is into some longer term support.

Banking sector looks attractive from a valuation standpoint, but from a go forward economic standpoint, we have to be careful as to whether or not oil prices are going to go down 20-25 etc. That will have a ripple effect on the consumer in Western Canada, and might even move into the real estate market in central Canada. Trading at 10.6X forward earnings with a 4% dividend. He has no trouble with the cash flow and the dividend yield. Will probably grow its dividend by high single digits going forward.

(A Top Pick Jan 13/15. Up 4.09%.) Not great, but pretty good versus the market and some of the other Canadian banks. Banks as a group are quite attractive. Now that Canada is going back into recession, the multiples have contracted quite a bit and they continue to raise dividends in the single digit range. Likes this bank’s US exposure, which is about 25% of their overall business.

Rate Reset Preferred. The yield is taxed as a dividend. It becomes very important what the Bank of Canada Rate is as it comes near a date for reset. That is where the risk is.

Banks with exposure to the US have been a little bit less impacted than others. This bank has built up a very good base in the Northeastern US. His question has always been what is the return on capital, and how long until shareholders really benefit from that. Because of that, he has no exposure to this bank. Prefers others at this time.

Buy for grandchildren and leave it where it is? Based on this phrasing, it is a great idea. Over the long, long run, Canadian banks are great investments. In the near term, not so hot, as there are going to be a lot of headwinds. You can do this with any of the banks.

Stock vs. Stock. TD-T vs. BNS-T. Both are great banks and you can hold both. TD-T is the most expensive of the group right now. BNS-T is at 9.5 times next year’s earnings and he has not seen it this low since the crisis. He would prefer BNS-T, which has sold off because of its commodity exposure in Latin America. However, the economies are doing fine down there.

Likes the growth in the US where they are focusing on retail banking as well as credit card acquisitions. The credit card business offers huge cross-selling opportunities. This has been and will continue to be a continuing boom to them. Also, they are cost-cutting and getting themselves in shape for changes that are coming to the system. Dividend yield of 3.83%.

Calculating the risk and using option pricing to determine the expected return? Let’s say the bank is $54. A $54 Call and a $54 Put. If you add these 2 together, it is about $4.20. Your trading range for the next 3 months is $49.80 up to $58.20. If you are comfortable with that kind of volatility over the next 3 months, this tells you what the expected return is.

Buy a Call. Believes the banks are probably going to lead next year. This one has not had a good year, and thinks this is the best positioned in Canadian banks in terms of their US exposure. Buy a Call option at $54 out to January 2017.

Enbridge (ENB-T) or Toronto Dominion (TD-T)? This is the one that you should buy.

Likes the banking group in general, which has done better overall than the TSX, but generally speaking bank stocks have not done that well on concerns that Canada is going into recession. The valuation is attractive and she likes the US exposure. Rates increasing should benefit financial services companies in the US. Expects this bank will continue to increase the dividend at the same rate that their earnings increase.

Banks or insurance companies? In Canada he would say the banks. When you write an insurance contract, you write it today and you have this liability somewhere in the future. This gives you a long dated risk, whereas in the bank you don’t have it. Both have good leverage to rising rates and a rising stock market. He likes this bank. They have done a great job. They have more US branches than they have in Canada and the US theme is very strong.

He is not in any banks and would have a hard time buying them here. There is nothing wrong with the banks. He just doesn’t expect good things coming from the banks in the next few quarters.

This is towards the top end of his range of $56. Q2 was too reliant on volatile insurance earnings and wholesale. To justify their premium multiple, they have to start showing some good momentum with the Canadian bank and the US bank. The US bank was flat year-over-year. The Canadian bank was up .3%. It’s a name that is not going to hurt you. Has great capital ratios. Last quarter there was positive operating leverage on all banks. Has a good US$ tailwind. He would buy this a little bit cheaper.