Toronto-Dominion Bank (TD.TO)

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.

He has only a small exposure to Canadian banks. TD-T has grown their dividend about 10% a year over the last 5 years and pay out only 45% of their earnings. There is no risk, but he thinks dividend growth will slow. He prefers US regional banks.

Technically there is a bounce coming off the bottom at the support line. There is some room to go before it reaches the next resistance point. Also, we are in the favourable season for banks. A good one for you to look at now. (See Top Picks.)

An excellent company and he is a big believer in their story in the US.

The multiple downgrade on all Canadian banks is far too overdone. This has suffered from the Short selling, and 3.5% of its flow is now Short. The general growth of business in the US and Canada, particularly in the US, is going to augur quite well. Dividend yield of 3.76%.

He likes their big US presence. They did their acquisitions at good prices. They have a good brand, especially in New York. They understand mortgage lending quite well. Their Canadian side is quite strong. Bank North was like Canada Trust was. It has all played out quite well.

In general, you can hold onto all of your Canadian banks. This is probably not a good time to be selling. Banks have been under pressure for some time. This bank has exposure to the best market in the world right now, the US. A well managed company.

He has owned it forever. They are great bankers. Half their revenue comes from the US and they will be the biggest benefactor if interest rates ever go up. They are one of the strongest retail banks in Canada and in the US. They did a bunch of cost cutting and he thinks they will surprise on their numbers when they come out.

It was one of the leaders. We had a period of bullish congestion since mid-2014. You probably should own banks. You could own a basket. He sees no harm done.