Buy TD Bank (TSX:TD) Today Because It Won’t Stay This Cheap Forever!

TD Bank (TSX:TD)(NYSE:TD) is trading at a discount, but don’t expect it to last through 2020!

| More on:
Bank sign on traditional europe building facade

Image source: Getty Images

TD Bank (TSX:TD)(NYSE:TD) stock has delivered a stinker of a quarter earlier this month. The “premium” bank that many Canadians pay top dollar for has succumbed to the macro headwinds facing the Big Five, outshined by Canada’s number six bank in National Bank of Canada, putting its five bigger brothers to absolute shame for the fourth quarter!

What went wrong with TD Bank’s profits amidst the transition into the next phase of the credit cycle? Wasn’t TD Bank supposed to be well-equipped to handle such big bumps in the road?

Has management lost its aura of conservative practices by seeking riskier opportunities to grow during good times? And is TD Bank still worthy of the premium it once sported over its peers?

In the expansionary phase of the credit cycle, all is well, and the banks provide loans across the board. Rules are more relaxed, and the loan books of the banks surge, but the banks may be at risk of letting their guard down as they look to outdo their peers with regards to growing their loan books.

The banks that grew their books the quickest may have done so by raising their overall risk profile, and it’s these banks that could take the biggest hits to the chin when the credit cycle falls into a downturn.

While many Canadians likely expected better from TD Bank amid the slew of negativity in 2019, I’m not buying that TD Bank has lost its premium traits and has suddenly become a riskier lender like CIBC overnight.

Did TD Bank get caught offside? No doubt, but I see the Q4 flop (and the noise related to TD Ameritrade) as nothing more than small blips in the grander scheme of things.

As such, I view TD Bank as being discounted as short-term factors have drowned out the firm’s promising longer-term fundamentals.

TD Bank’s management team certainly believes that its shares are undervalued, as it’s ready to eat its own cooking over the next two quarters, with 3.5 million share repurchases to be made in the first half of 2020.

For Q4, TD clocked in adjusted EPS of $1.59, substantially lower than the $1.74 consensus estimate. Slowed growth, net interest margin (NIM) pressures, and rising provisions for credit losses (PCLs) (the usual suspects among the banks these days) took their toll on TD Bank’s results.

While TD Bank could have done a bit better to prepare for the credit cycle downturn, it also could have done much worse too.

For now, TD Bank looks no better than its peers, but once credit stabilizes, I do see the premier bank roaring back as its stock slowly regains its premium multiple over its peers.

For now, the stock is on sale, so it’s time to buy. TD Bank will be right there purchasing (more) shares with you.

Stay hungry. Stay Foolish.

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 Joey Frenette owns shares of TORONTO-DOMINION BANK.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »