In October of 2017, I’d discussed the pleasant surprise that was the Quebec economy and took a snapshot of some Quebec-based stocks that investors could dip into at the time. Fast forward a year later, and GDP growth is set to dip below 2% in 2019. The same is true for Ontario, which boasts the largest economic footprint in Canada.
Quebec is expected to post more moderate job creation next year, while rising interest rates have hurt consumer demand. The province had posted two consecutive years of over 3% growth, outperforming many of its peers, which has been a struggle for Quebec in the modern era. The housing market in Quebec has also been a bright spot in the Canadian economy, especially following the implementation of a foreign buyers’ tax in the hot Vancouver and Ontario real estate markets.
Today, we are going to focus on two Quebec-based banks that will be relying on solid growth in Quebec next year and beyond. Should investors look to scoop these stocks up in December? Let’s dive in.
Laurentian Bank (TSX: LB)
Laurentian Bank is a Montreal-based regional bank. Shares were down 30.9% in 2018 as of close on December 12. The stock has struggled since the bank was forced to wrestle with a mini-crisis in its mortgage underwriting that it was able to resolve by the end of the third quarter this year.
Laurentian Bank released its fourth-quarter results on December 5. It was a disappointing quarter that saw net income fall 13% year over year to $50.8 million. The bank reported lower revenues and loan volumes in the quarter, which is a concern heading into 2019. However, for the full year Laurentian Bank saw net income rise 9% from 2017 to $224.6 million.
As of close on December 12 Laurentian Bank stock boasted an RSI of 33, just outside oversold territory. Laurentian faces headwinds in 2019, including an attempt to modernize its branch network, while wrestling with its employee union. Income investors may be swayed by its quarterly dividend of $0.64 per share, which represents a strong 6.5% yield.
National Bank (TSX: NA)
National Bank is often unsung among the Big Six Canadian banks. However, it has suffered from the same broadly negative market conditions of the other big banks in the final months of 2018. Shares had dropped 9.3% over a three-month span as of close on December 12.
In its fourth-quarter results conference call, National Bank CEO Louis Vachon said that economic strength in its home province would power growth going forward. The bank had tried to look outside Quebec for growth in the past, including making serious pushes to enhance its footprint in Alberta and Ontario. National Bank now projects that it will maintain its overweight position in Quebec and rely on its traditional banking network to enter the next decade. Currently, National Bank draws 60% of its revenue from its home province.
In the fourth quarter, National Bank hiked its quarterly dividend by 5% to $0.65 per share. This represents an attractive 4.1% yield.
