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Is Bank of Nova Scotia (TSX:BNS) About to Enjoy a Massive Upside Correction?

It’s been a tough 2018 for the banks, especially Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) (or Scotiabank), which was one of the Canadian banking giants to fall into a bear market just days before Christmas. The emerging markets trade has spoiled thanks in part to Fed chairman Jerome Powell and his rapid-fire interest rate hikes, which have since been “doved down.”

Higher U.S. rates mean a stronger U.S. dollar, and a stronger U.S. dollar isn’t great news for the emerging markets, but now that forward-looking rate-hike expectations have been tempered, it may make sense to jump back into Canada’s top international banking stock in Scotiabank on the dip. The banks have enjoyed a collective sigh of relief in January, but I believe there’s still plenty of room to run to make up the past-year damage that’s already been done to Scotiabank stock.

A quarter to forget

Scotiabank clocked in mediocre fourth-quarter results that were nothing to write home about. While the results weren’t abysmal, they definitely paled in comparison to some other, better-performing banks, but, fortunately, for those looking for a banking bounce, that’s old news and has already been baked into the stock.

Diluted EPS was clocked in at a “just okay” $6.82, up 5% year over year. When accounting for adjustments, diluted EPS numbers were up 9% year over year, and while it was evident that domestic growth slowed considerably, investors may look to Scotiabank’s Latin American segment for a potential bounce back to offset the domestic slowness. Operating leverage came in at 3.7%, which was satisfactory, but not a surprise.

Management also announced the divestment of non-core Caribbean businesses, which is an apparent positive, seeing as management can now put more focus on its core operations, which will undoubtedly be a significant contributing factor to Scotiabank’s potential rebound.

Moving forward, Scotiabank will be hard at work pulling the levers on its international businesses to improve its efficiency ratio and drive enhanced profitability. Meanwhile, the bank is also expected to spend a considerable amount on future-proofing technologies to keep up with the digitization of banking trend.

Foolish takeaway on Scotiabank stock

There are many things to like about Scotiabank and its current trajectory, especially when you consider the dirt-cheap valuation. At the time of writing, Scotiabank trades at a 9.9 forward P/E and a 1.5 P/B, both of which are cheaper than the bank’s five-year historical average multiples of 11.8 and 1.7, respectively.

Given the impressive 14.4% ROE that may be slated to improve slightly over the medium term, I’d say you’re getting nothing short of a bargain at this juncture.

If you like dividends, you may want to scoop up shares before this period of undervaluation comes to a close.

Stay hungry. Stay Foolish.

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Learn More About This TSX Stock Now

Fool contributor Joey Frenette has no position in any of the stocks mentioned. Bank of Nova Scotia is a recommendation of Stock Advisor Canada.

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