The 3 Canadian Banks I’d Buy Today

Canadian bank shares are trading very cheaply in today’s environment. My favourites include Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) and Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM).

| More on:
The Motley Fool

These days, there’s a lot of negativity surrounding Canadian banks. The oil rout is threatening the Canadian economy. The real estate market could suffer too. Meanwhile the government is lowering interest rates. As a result, the banks are facing a very challenging environment, one that will likely see lower loan growth, higher defaults, and tightening margins.

Investors are well aware of these facts. To illustrate, Bank of America’s number two trade for 2015 is to sell the Canadian banks while buying American banks. Investors have responded in kind, betting against Canadian banks like Royal Bank of Canada and Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM).

But this might be the perfect time to start a position. After all, with investor sentiment so negative, some of the banks are trading at very reasonable prices. On that note, below are the top three banks I would buy today.

1. The Bank of Nova Scotia

The past year hasn’t been fun for shareholders of The Bank of Nova Scotia (TSX:BNS)(NYSE:BNS), Canada’s most international bank. The bank struggled in certain markets, most notably in the Caribbean, and posted numbers that mostly disappointed investors. As a result, its share price lagged peers throughout the year.

But that’s created a great opportunity. The bank’s shares trade at less than 11 times earnings, a very small number for a company with a big presence in emerging markets. It’s hard to find a better deal than that in any industry.

2. TD

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) has long been a favourite in the investment community, and for good reason. The company has an excellent corporate culture, one that emphasizes risk management and top-notch customer service. Better yet, it has a fantastic track record of creating value for shareholders.

TD is also very well-positioned to navigate today’s tough environment. The bank has a strong presence in the United States (with even more branches there than in Canada), an excellent geography to be in right now. It is also less exposed to the oil sector than its peers.

One knock on TD has always been price; the bank tends to trade at a premium. But today, you can get the shares for only about 13 times earnings.

3. Canadian Imperial Bank of Commerce

There are certainly some concerns surrounding CIBC. For one, it doesn’t exactly have a spotless track record. Secondly, the company has made an all-in bet on Canada. And finally, there was some drama at the executive ranks last year.

But beneath it all, CIBC has turned itself into a very solid bank, with strong risk controls, higher capital ratios, and a more profitable business model. And the bank once again trades very cheaply, currently at just 12 times earnings. For that reason, the company’s dividend yields well above 4%.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned.

More on Bank Stocks

Question marks in a pile
Bank Stocks

Should You Buy Canadian Western Bank for its 4.8% Dividend Yield?

Down 35% from all-time highs, Canadian Western Bank offers a tasty dividend yield of 4.8%. Is the TSX bank stock…

Read more »

analyze data
Bank Stocks

The Average Canadian Stock Investor Owns This 1 Stock: Do You?

This Canadian stock has about 49% ownership by the public, and with growth and dividends to consider, it's a top…

Read more »

falling red arrow and lifting
Stocks for Beginners

1 Dividend Stock Down 18% to Buy Right Now

CIBC (TSX:CM) is a strong dividend stock investors should certainly consider not just for passive income, but future growth as…

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Tech Stocks

Forget TD Stock: 2 Tech Stocks to Buy Instead

TD remains a solid income stock but two outperforming tech stocks are better buys for their strong growth and upside…

Read more »

Question marks in a pile
Bank Stocks

Where Will Royal Bank of Canada Stock Be in 5 Years?

Royal Bank's continued focus on a strong capital position plus its acquisition of HSBC will likely ensure prosperous times ahead.

Read more »

Payday ringed on a calendar
Bank Stocks

How to Build a Bulletproof Monthly Passive-Income Portfolio With Just $10,000 and TD Stock

TD (TSX:TD) stock has been a poor performer over the last few years, but could be a big passive-income winner…

Read more »

Man considering whether to sell or buy
Bank Stocks

Is RBC Stock a Buy, Sell, or Hold?

Shares of Royal Bank of Canada have delivered game-changing returns to shareholders in the last two decades. Is RBC stock…

Read more »

Dice engraved with the words buy and sell
Bank Stocks

Is Scotiabank (BNS) Stock a Buy, Sell, or Hold?

Let's dive into whether the Bank of Nova Scotia (TSX:BNS) remains a solid buy or if it's more of a…

Read more »