Toronto-Dominion Bank (TD.TO)

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.)

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.