It’s pretty hard to be convinced to buy anything in a volatile market such as the one we’re in right now. But with stocks reaching lows not seen in years, there are a few areas where it’d be crazy not to buy.
One of those areas are with Canada’s Big Six banks, but you still have to be careful. Obviously, you want to choose the best bang for your buck and make sure you’ll see some returns as soon as possible.
That’s why today I’m recommending investors take a good look at Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and Bank of Nova Scotia (TSX:BNS)(NYSE:BNS). These banks are both in the top three of Canadian banks, with some potential for immense growth for your TFSA. Of course, a few things have to happen to get there, so let’s get to it.
America the beautiful
TD hasn’t escaped the market downturn of the past few months, along with the other Big Six banks. But what’s saved the bank is its large investment in the United States. In fact, its investment in U.S. retail is almost as big as in Canadian retail, with that business alone growing by 44% year over year in Q3. The bank’s United States investment now makes up about 30% of the company’s business.
Analysts believe it shouldn’t be too long before TD will see double-digit earnings from its United States interests. With so much potential for growth, it’s no wonder that TD recently decided to focus on North America for further expansion and sell its European direct-investment interests.
While the future could be a rosy one for TD, the one thing that could really hurt the company is if the housing crisis worsens. Fewer and fewer people are buying houses these days, with Canadian home sales slowing by 12.5% as of November. Mortgage lending is the biggest part of TD’s lending operations and a huge part of its overall business. So, if a housing downturn continues, this could have a serious impact on both the company’s earnings and credit.
Talk about potential
Then there’s Bank of Nova Scotia, better known as Scotiabank. Rather than focusing on North American operations, the bank has expanded to become Canada’s most international bank. Scotiabank still gets half of its revenue from Canada, but it gets about 40% from international operations and just under 10% from the United States.
With a foothold in so many countries, this gives the bank a huge potential for expansion compared to its peers. However, it also leaves it open to more risks, especially with such a large portion of its international business in Latin America, which has a history of political instability.
The tech bank
Another area of expansion that puts Scotiabank ahead of the rest is in the tech industry. The bank has been spending the most out of the Big Six banks on technology and communication expenses, and customers should see this pay off almost immediately with better efficiency throughout the company. This should also give investors some increased confidence as well.
TD and Scotiabank are both great blue-chip companies to consider investing in, but here’s the best part: according to analysts, these banks are at huge discount. At the time of writing this article, TD shares are selling for $67.69, and Scotiabank is at $68.76, but analysts put their worth at $81 and $77, respectively. That’s a huge discount for both stocks, especially when both could reach the $90 range by the end of 2019.
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Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned.