MENU

Fool Canada’s first 1,000%+ winner?

Our Chief Investment Advisor, Iain Butler, and a team of The Motley Fool’s most talented investors from across the globe recently embarked on an unprecedented mission:

To identify the 20 Canadian small-cap companies they believe have the best shot at earning investors like you gains of 1,000%+ over the coming years.

For the next few days only, you can get the names and full details on these 20 potential “10-baggers” when you join Iain and his team in a first-of-its-kind project they have dubbed Discovery Canada 2017.

Why Toronto-Dominion Bank Is the Safest Canadian Bank

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) has just closed out the Q1 earnings season for Canada’s big banks, reporting an impressive earnings beat. The company’s Q1 adjusted earnings per share (EPS) of $1.33 beat the street analyst consensus expected EPS of $1.27 — a positive earnings beat of approximately 5%.

What is interesting is how the markets have reacted to the news. The stock has basically been flat since the announcement. I’ll take a deeper look at why this is the case and talk about why the positive earnings beat may have already been priced into TD’s stock.

Relative performance remains strong

Compared with the other major Canadian banks, TD has fared very well. While Royal Bank of CanadaBank of MontrealCanadian Imperial Bank of Commerce, and National Bank all reporting earnings beats, Bank of Nova Scotia was the only major Canadian bank to report an earnings miss.

With the expectation that TD would beat earnings, as the majority of the other big banks have done so prior to TD’s financials release, analysts have pointed to the likelihood of an earnings beat having already been priced into the company’s stock.

That said, earnings in TD’s Canadian and U.S. segments are up significantly; Canadian operations had a 4% boost, and U.S. operations had a 6.5% increase in profitability. The surge in profitability among TD’s Canadian retail and wholesale segments remains a strong point for the company as compared with its peers, many of which did not achieve the same increases as TD over the same period of time.

The biggest gainer in TD’s business portfolio is a 66% profitability increase in the bank’s wholesale banking division. The bank increased its revenues at a faster pace than its expenses and saw large upswings in higher debt and equity origination activity, as well as a large increase in trading-related revenues.

TD remains conservative with forward-looking estimates

One of the reasons I like TD in relation to the other large Canadian banks is the way management views long-term risk. TD was one of only two of Canada’s largest banks to increase its estimated provision for credit losses (PCL). The bank’s PCL is essentially a contingency fund put in place to mitigate any significant portfolio losses over the course of the next year.

The increase in TD’s PCL stands in stark contrast to other Canadian banks that have lowered their PCL, noting pervasive strength in the Canadian oil and commodities markets, meaning lowered risk of loan defaults to companies in operating in the resource industry.

While TD does list a rebound in resource prices as a positive for the overall PCL, the bank notes that loss provisions for auto loans and increased risks associated with the auto sector in the North American market mean that TD is taking a more cautious stance in beefing up its contingency fund. Increases in risks associated with foreign exchange was the other main reason for the increased PCL (from $548 million to $633 million).

Conclusion

TD is a conservative pick, relative to the other options available to the long-term investor looking for exposure to Canada’s financial sector.

Stay Foolish, my friends.

36-Year Old CEO Bets Over $300 Million on 1 Stock

Iain Butler, Lead Adviser of Stock Advisor Canada, recommended this little tech darling to thousands of loyal members last March... and those that followed his advice are up 127.7% (they've already made 2X their money!).

Not to mention this tiny Eastern Ontario company has already been recommended by both Motley Fool co-founders, David and Tom Gardner, because of its amazing similarity to an "early stage" Amazon.

Find out why Tom Gardner was recently on BNN's Money Talk raving about this company, and how you can read all about it inside Stock Advisor Canada. Click here to unlock all the details about his Canadian rule breaker!

Fool contributor Chris MacDonald has no position in any stocks mentioned.

NEW! This Stock Could Be Like Buying Amazon In 1997

For only the 5th time in over 14 years, Motley Fool co-founder David Gardner just issued a Buy Recommendation on this recent Canadian IPO.

Stock Advisor Canada’s Chief Investment Adviser, Iain Butler, also recommended this company back in March – and it’s already up a whopping 57%!

Enter your email address below to find out how you can claim your copy of this brand new report, “Breakthrough IPO Receives Rare Endorsement.”

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.