3 Reasons to Buy The Bank of Nova Scotia

The Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is currently undervalued, which makes it an attractive buy for your portfolio.

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The Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) is one of Canada’s top five banks. And over the past few months, the price of the stock has been dropping. I believe the time is right to start a position due to its diversification, its dividend, and its share price. Each of these reasons, when combined, makes this one of the most attractive of the Canadian banking stocks.

Diversification

The bank operates in four segments: Canadian banking, international banking, global wealth and insurance, and global banking and markets. In its 2013 annual report, it revealed that it made 34% of its income from Canadian banking, 26% from international banking, 18% for global wealth and insurance, and 22% for global banking and markets.

Of all the banks in Canada, none comes close to this diversification. Specifically, none of them approaches Bank of Nova Scotia’s international presence. That allows it to generate revenue from around the world, but when times get rough, it can still stay afloat due to its markets at home. I like diversity when looking at investments, and this one is really attractive.

Value of the stock

Based on where the stock is valued right now, I would suggest that it is anywhere from 10% to 15% undervalued. In comparison to other banks,  Bank of Nova Scotia has one of the highest returns on assets. Its trailing-12-months price-to-earnings ratio is currently 11.6. If we take the average of the past five years, we get right around 14. What does that mean? Over the past five years, the company has been valued at more than what it’s valued at right now. That means value.

Taking the percentage difference between 11.6 and 14, you wind up with right around 18%. But to be conservative — and because P/E isn’t the only factor — I say 15% undervalued. So the range I’m looking at right now is 10% to 15%.

Dividend and buybacks

The Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) is one of Canada’s top five banks. And over the past few months, the price of the stock has been dropping. I believe the time is right to start a position due to its diversification, its dividend, and its share price. Each of these reasons, when combined, makes this one of the most attractive of the Canadian banking stocks.

Should you buy?

I say yes. Between the diversification, the value, and the dividend (plus potential buybacks), this company is really in a good place to generate solid returns for you. But before you make a decision, I suggest first learning about all five of the Canadian big banks.

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 Jacob Donnelly has no position in any stocks mentioned.

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