Toronto-Dominion Bank (TD.TO)

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.)

Banks have a couple of seasonal periods. From Oct 10 into the end of the year, which driven by year-end earnings coming out in November. Canadian and US banks do well from January into mid April. We are now past that. He has just exited his position. Chart shows the trading channel is going down. This might be the time to be trimming back.

This is the only bank that he buys, because a lot of the Canadian banks have being constrained. Canadian banks are fantastic franchises and are dominate in many of the financial services. What is unique about TD is that they more branches in the US than they do in Canada. His personal preference would be a US pure play such as Bank of America (BAC-N) or Citigroup (C-N). (See Top Picks.)

(In his 3 top picks, he was looking for companies that would grow cash flow and increase dividends.)This has a great presence in the US, and he is bullish on the US. They have a CEO that understands the US business. Canadian banking business isn’t as bad as people think. He is not looking to shoot the lights out, but for average capital gains of 5%-7% plus the yield. For this bank, he is looking for a total return of 11%. Yield of 3.63%.

Has had a big move since the March lows. The game in financials right now is about cost cutting. Government is going to increase taxes on shadow dividends, which is going to knock another 1% off his 2016 estimates on the banking group in general. Banks are a good group. Dividends are high. You are probably going to have a better time to Buy over the next couple of months.

Bank stocks have all had a pretty good run recently. This would be one of his preferred picks. Likes its US exposure. Good dividend growth potential. Feels you could buy this here, but wouldn’t be surprised if there was a 10% correction lower and that it got down to the low $50’s. Consider Wells Fargo (WFC-N) as a good growth opportunity. Expects US banking operations will probably outperform the Canadian banking operations.

Prefers owning US banks to Canadian banks. If you want to own a Canadian bank that has US exposure, you can do that through this bank. US operations are large, but are underperformers as far as returns to the bank. You are better off owning a pure US bank. He has no interest in the money centred banks, prefers regional banks.

Shares are performing much better on the TSX relative to the NYSE. How come? The short answer is currency. The spread right now is about 7%-7.5%. Because they report in Cdn$’s they have to convert and this is what causes the spread. This is more of a US bank than a Canadian one in that they have more branches in the US and more than 50% of their revenues comes from the US. A good name to own, because it does give you exposure to the US.

Have a good amount of US exposure. Things are a bit slow in Canada, but the US side is picking up momentum. He thinks that will show up in earnings. Bank stocks in general have taken a back seat for a while. They have built a good base here and you will see them moving higher.

In his opinion, this and Royal (RY-T) are the best in class. You not only get stability from the Cdn retail, but also half their assets are in the US. They are just beginning to get synergistic between the 2 countries. Cheap relative to Book Value.

The valuations on banks are not hugely challenging but the growth targets are not high. He does not think credit issues in Alberta are significant. They are okay and you get almost a 4% dividend. It won’t be the best year for them but that is in the price. A good long term place to be and he likes their US exposure.

His favourite. The best exposure to the US which is the best international market to be in. Not a bad time to average in. He does not see huge catalysts but also not a lot of downside.

This would be his top bank given the push that they have in the US. They have had great success in being able to build out there retail franchise. Approximately 22% of their adjusted earnings come from US retail banking. In terms of being able to compete and benefit from a US tilt, this is probably one of the best banks. Trading at a reasonable valuation of 11.3 X forward earnings. Dividend yield of 3.78%.