Canada’s Big Banks Are Oversold: Time to Buy!

The stocks of Canada’s big banks, including Toronto-Dominion Bank (TSX:TD)(NYSE:TD) stock, are oversold. Now is the time to buy.

| More on:
Bank sign on traditional europe building facade

Image source: Getty Images

Market jitters have returned in full force. The markets have been taking a beating, and the red tide has spared no one. Everything is being dragged down.

The greatest opportunity exists when stocks and industries are being unfairly dragged down. Banking is one such industry. In fact, last week there was positive catalyst for the financial industry that went largely unnoticed — a 25-basis-point rise in interest rates.

Rising rates should be a boon for Canada’s banks, as they should result in a higher net interest margin (NIM). It was therefore surprising to see Canada’s Big Five banks enter oversold territory last week.

A popular indicator used by investors and traders alike is the Relative Strength Index (RSI). An RSI below 30 signals the stock is oversold and tells investors it’s time to buy.

Based on this oscillator, the following three big banks are flashing buy signals.

Toronto-Dominion Bank (TSX:TD)(NYSE:TD)

There are a number of reasons to buy TD Bank. It has consistently been a top performer among its peers. Its one-, three-, and five-year performance tops the all of the Big Five banks. Over the past year, its outperformance has been even more pronounced. Year to date (YTD), its stock price has dipped 1.89% as compared to the group average of 7.2%.

Last week, its RSI dipped to a year-low of 21.85. TD Bank is trading below its historical price-to-earnings (P/E) average and has a P/E to growth (PEG) of 0.91. A PEG under one signifies that the company’s share price is not keeping up with its expected growth rate. Thus, it’s considered undervalued.

Royal Bank of Canada (TSX:RY)(NYSE:RY)

With an RSI of 20.9, Royal Bank was the most oversold financial and the fourth most oversold company on the TSX Index last week. The bank finds itself in an unfamiliar position among the worst performers in the industry.

YTD, its stock price has lost 8.67% of its value, second only to Bank of Nova Scotia. For the first time since 2016, the company is trading below its historical P/E ratio. As I’ve written about a few times before, this is a clear buy signal for Canada’s big banks.

Bank of Montreal (TSX:BMO)(NYSE:BMO)

BMO rounds out the trio of oversold banks. Its RSI indicator of 22.2 also makes it a screaming buy. BMO’s performance over the past one, three, and five years is second only to TD Bank. YTD, it has held up better than most, losing only 2.97% of its value.

Unlike the other two, BMO is still trading in line with its historical P/E ratio. Of note, it’s the only one of Canada’s Big Five that hasn’t dipped below its historical averages. Likewise, it has a PEG of 1.21, implying it is fairly valued based on expected growth rates.

The technical RSI indicator on all three of these reliable dividend-growth companies signal a buy. Canada’s banks have been some of the most reliable investment options in Canadian history. Don’t miss out on your opportunity to pick them up on the cheap.

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 Mat Litalien is long Toronto-Dominion Bank and Bank of Montreal.   

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 »