Toronto-Dominion Bank (TD.TO)

Best in class. He owned two stocks since day one and this is one of them. 10 times earnings. Close to half of their assets are in the US. He thinks the volatility is leaving the sector.

It is very rare that you see the multiple of this bank less than a couple of the other banks in the sector, and that is the situation we are looking at now. The multiple is down to about 10.8X next year’s earnings. The yield is still lower than some of the other banks, but he likes them because of their US exposure. The 2 banks with the lowest PE’s are the 2 that do not have as much US exposure. This is a great entry point. Yield of about 3.8%.

This is an important anchor within a portfolio. You should be aware that more than 50% of their revenues is coming from the US. Pays a good dividend of 3.9%.

He was a little disappointed in their last earnings. It was because of closing some branches in the US. He expects better results out of the US. He thinks they are second only to RY-T over the last year. The shorts are going to get it wrong again.

Canadian Banks are very steady type of names. This is trading at 11X forward PE, which is historically the average type of PE for most bank stocks. You will probably see a 9% growth rate in terms of earnings. 3.5% dividend yield will probably grow at around 6%-7% per year.

(A Top Pick June 11/14. Up 3.03%.) Returns have been flat as expectations for economic growth in Canada subside because of the collapse in oil prices. He mulled over using this as a Top Pick again. Not particularly expensive.

He likes it in order to get access to the US. He looks for better growth in the street and given their deposit base, a quarter point interest rate increase and the net returns from deposits would create $0.60 per share.

Wouldn’t be worried about the banks. There are 2 views. Are you going to hold this for the next 3-5 years or more? If so, just hold onto them. Valuations aren’t wildly expensive; they are just OK and reflect the reality of what is happening to the banks. Outlook doesn’t look great for the next 12 months, so find some of the names that you can offset some of that risk in another sector.

CIBC (CM-T) or TD (TD-T)? What is amazing is that both of these banks are trading at the same valuation. Both of them are just over his green line. This one has a 16% upside while Commerce has a 32%. You have to watch Canadian bank stocks very carefully as the world is Shorting Canada. Canada has all the wrong things going for it including current account deficits, a commodity-based economy, highest personal debt globally, a real estate bubble, etc. If either of these had a significant break, he would be out of there.

Stock vs. Stock. RY-T vs. TD-T. For the first time in a decade, TD-T has moved into the top three on a 10-year performance basis. RY-T is first, however. Everything they are doing is based on 10 year ago investments. TD-Ts US investments are only just starting to get hold.

He likes the Canadian banks. Pick your favourite and stick with it. ROE’s are nice. Thinks the banks could trade at 13X earnings.

(For a long term hold.) You can’t go too far wrong with this. It would probably be his favourite Canadian bank. They have more exposure to the US market than most of the other Canadian banks. Have benefited from creating a really strong brand in the US Northeast.

In the last few days all the banks have been coming out with their earnings, and they all beat their consensus estimates. You would think this was good news and the stock would be moving higher, but not so. This broke a key support level today, so it established a downward trend. Bank stocks have 2 periods of seasonal strength, October until December and February to April. This is not the right season and the trend is starting to work lower. There are better opportunities elsewhere.

The earnings look pretty good to him. Canada was good to them. Canadian banks are very cheap to him. TD-T are growing their franchise by buying credit card businesses and by developing a brand in the US.

His view on Canadian banks is that there are better places to be. Generally he is underweight Canadian banks. Canadian lifecos are a better place to be. Also, banks outside of Canada are a better place to be. He doesn’t like the headwinds or the high debt position of Canadians. (See Top Picks.)