Why Toronto-Dominion Bank’s (TSX:TD) Fire-Sale Price Won’t Last Long

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is a conviction buy this January.

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While other Canadian bank stocks have begun to bounce back from a rough end to 2018, Toronto-Dominion Bank (TSX:TD)(NYSE:TD) has only managed to post a meagre rally that’s shy of the 5% mark. Although the weak relief rally relative to peers was unsurprising to some, since TD Bank stock hadn’t fallen as hard from peak to trough, I find it unfair that TD Bank stock has remained in the dog house in spite of its solid quarter that put most other Canadian banks to shame.

With that in mind, I think TD Bank stock will pick up ground over its peers come the next few quarters, as investors return their focus to the performance of individual companies themselves and not fears over the dire macro environment.

Some bulls, like fellow Fool contributor Ambrose O’Callaghan, aren’t ruling out the possibility that TD Bank stock could burst through its all-time high of around $80.

“Investors may want to temper their expectations in 2019, as economic headwinds will keep markets shaky going forward. A shot back to all-time highs is a tall order, but TD Bank is in a good spot to lead a bounce back in Canadian financials this year.” said O’Callaghan in a prior piece dated January 13.

From current levels, TD Bank stock would have to rally 16.2% for the year, implying a total return of around 20%. That’s a tall order but definitely not out of the question, especially when you consider TD Bank stock is not only the most premier player in the Big Six with its less-volatile, higher-growth earnings stream, but it’s also one of the best performers over the past year. Add tech-driven catalysts into the equation, and there’s no question that 2019 could be a heck of a rebound year for TD Bank.

Most folks on the Street are already aware of TD Bank’s more conservative loan book, and its higher-quality, albeit lower ROE U.S. business, but what many analysts discount is the bank’s potential for technological innovation in the FinTech arena.

You see, TD Bank has been opening its pocketbook on technological initiatives, many of which haven’t yet enjoyed a return on investment. This will change, however, as TD rolls out significant enhancements to its WebBroker platform, which will be chock-full of innovative new features that’ll aim to improve the experience of its customers.

It’s not just about an enhanced platform, TD recently released an AI-driven chatbot called Clari. Sure, Clari isn’t perfect, as it’s a new customer-facing technology, but over the course of years, after many updates, don’t be surprised if you find Clari as the cause for the declining number of tellers at physical branches. Who knows? Clari may be the only teller that TD customers will be able to interact with in 10 years from now.

Foolish takeaway on TD Bank stock

TD Bank doesn’t deserve to be battered as badly as it’s been. The bank has arguably made the most progress in 2018, so don’t think for a second that the stock chart paints the picture of what happened.

Over the coming months, not only do I think O’Callaghan’s $80 price point will be reached by year-end, it’ll likely be broken by summer if the yield curve doesn’t end up inverting on us. In any case, TD Bank is a conviction buy at $68 and change.

Stay hungry. Stay Foolish.

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 Joey Frenette owns shares of TORONTO-DOMINION BANK.

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