Which Canadian Bank Is the Cheapest?

A simple comparison tells an interesting story.

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

When investing in the banks, it is important not to pay too much, just like in any other industry. But which banks are the cheapest? Well, it depends which measure is used.

Below is a table that shows the price/earnings and price/book multiples of the banks. One focuses on how much the banks make, while the other focuses on how much the bank has. And the comparison yields some interesting findings.

Company Price/Earnings Price/Book
Royal Bank of Canada 13.0 2.3
TD Bank 14.4 1.9
Bank of Nova Scotia 12.4 1.9
Bank of Montreal 11.6 1.6
CIBC 10.4 2.3

CIBC:The cheapest or the most expensive?

CIBC’s (TSX:CM)(NYSE:CM) strategy can best be described as “back to basics.” After getting burned badly by the U.S. subprime crisis, CIBC is placing a bigger focus on operations in Canada. It is focusing less on international markets than all four of the other big banks. This is reflected in the multiples above.

Of all the banks, CIBC’s price/earnings multiple is the lowest – investors are simply asking, “Where’s the growth?” But at the same time, Canadian banking is very high return. For that reason, CIBC’s price/book multiple is the highest among all the banks.

So CIBC makes plenty of money, but will have trouble growing its bottom line. Conservative investors may want to consider this bank for their portfolio (oddly enough, this is a complete role reversal for the bank).

TD: Plenty of growth, but it’s in the United States

TD (TSX:TD)(NYSE:TD) has the highest price/earnings multiple among the big banks. This is because unlike CIBC, TD is expanding rapidly in the United States, which provides plenty of room for growth.

But the United States is a very competitive market, so returns are very hard to come by. For this reason, its price/book multiple is well below that of CIBC.

Bank of Nova Scotia: Probably the best deal

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is the most focused on emerging markets. This has not been good for the company’s stock price in recent months, which has made the multiples much more attractive.

The bank’s multiples are right in the middle of the pack. But given its opportunities to grow in emerging markets, investors are likely getting a bargain. This should not be particularly surprising, given that the bank’s stock price has performed the worst of all the banks over the past year. This is where astute investors would be wise to pick up some shares while they’re cheap.

Foolish bottom line

In the end, the best bank to choose depends on what kind of bet you want to make. Looking for a safe bet? CIBC is likely the best option. If the goal is to bet on a recovery in the United States, then TD would be the best choice. Or if someone is looking for a bargain in emerging markets, then Bank of Nova Scotia is the answer.

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.

More on Investing

Hands holding trophy cup on sky background
Investing

3 Growth Stocks That Could Be Huge Winners in the Next Decade and Beyond

Here are three top TSX growth stocks that may be worth a look, given the significant valuation declines these stocks…

Read more »

edit Back view of hugging couple standing with real estate agent in front of house for sale
Dividend Stocks

Why Real Estate Stocks Are a No-Brainer Addition to Your Portfolio

Real estate stocks, especially REITs, offer some distinct advantages over other types of stocks, making them must-have additions to most…

Read more »

Man data analyze
Stocks for Beginners

Beginners: 2 Market-Beating Stocks Just Getting Started

Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM) and Constellation Software (TSX:CSU) are proven market beaters that could continue their ways.

Read more »

oil and natural gas
Energy Stocks

Small OPEC+ Oil-Output Hike: Buy More Energy Stocks?

Energy stocks could soar higher, because oil markets will remain tight due to the small production increase by OPEC+.

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

3 Top TSX Dividend Stocks to Buy for Monthly Passive Income

Top TSX stocks with monthly dividends now trade at cheap prices for investors seeking passive income.

Read more »

edit Person using calculator next to charts and graphs
Investing

Where to Invest $500 in the TSX Right Now

Long-term investors can look to buy stocks, including Suncor Energy and Shopify, as they are poised to outpace the broader…

Read more »

Canadian Dollars
Dividend Stocks

Create Free Passive Income and Turn it Into Thousands With 1 TSX Stock

If you can't afford to invest, you can certainly create passive income another way and use that to invest in…

Read more »

falling red arrow and lifting
Investing

2 Oversold TSX Stocks That Should Bounce Back

Stocks that are oversold without an external catalyst like a market crash or a weak sector might be risky buys,…

Read more »