Buy Alert: It’s Time to Load Up on These 2 Great Canadian Bank Stocks

If you don’t buy Laurentian Bank of Canada (TSX:LB) and Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) shares today, you’ll be kicking yourself later.

| More on:
Bank sign on traditional europe building facade

Image source: Getty Images

It’s pretty much common knowledge at this point.

Owning Canadian banks has been one of the best investment decisions made over the last 25 years, and every indication points to it working out pretty well over the next quarter-century, too.

Much was made of the so-called FinTech revolution a few years ago, as pundits were sure upstart technology-heavy competitors were about to muscle in on lucrative parts of the Canadian banking sector. Online-only loans, robo-advisors, and other revolutionary new products would take huge amounts of market share from Canadian banks.

We all know what happened. The banks invested billions into upping their own technological game. Or they used their considerable profits to buy out some of the more interesting competitors. FinTech went from trying to crush the banks to increasingly joining forces with their more established competition.

With that threat squarely in the rear-view mirror, there’s nothing holding back investors from loading up on bank stocks. The only question is, which ones should they choose? There are a couple banks I believe are screaming buys today — institutions that offer an interesting mix of value today with growth potential tomorrow.

Let’s take a closer look.

Bank of Nova Scotia

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is the largest bank in my portfolio along with being one of my largest positions, period. There’s a lot to like about this financial institution.

First off, let’s start with the Canadian business, which is rock solid. Scotiabank is Canada’s third-largest bank with a market cap of $87.5 billion, assets approaching $1 trillion, and nearly 1,000 branches in Canada. Scotiabank has a strong mortgage business, a solid wealth management division, it’s a major player in capital markets, and millions of Canadians do their day-to-day banking there.

But the real gem of this company, at least in my opinion, are the international operations. The company is big in Central and South America, with significant assets in nations like Mexico, Chile, Colombia, and Peru. In total, these international operations consist of more than 1,800 branches, 50,000 employees, and they generate approximately one-third of the company’s total income.

The international division is growing at a much faster rate than operations here at home. Net income from the Canadian banking division was up 8% last year. International banking growth was double that, delivering 16% growth. And higher interest rates in these developing nations mean better net interest margins.

Simply put, there isn’t much growth potential here in Canada left. But Scotiabank has plenty of room to increase the Latin American operations. Investors are paying less than 10 times forward earnings for this potential as well as collecting a 4.9% dividend to wait.

Laurentian Bank

If you thought Scotiabank and its 9.9 times forward earnings multiple was cheap, then you’ll love Laurentian Bank of Canada’s (TSX:LB) valuation. Its shares trade for just 9.2 times forward earnings and for 20% less than book value.

There are a few reasons why Laurentian’s shares are cheap. Some investors think the bank has lax mortgage underwriting standards. Others don’t like the unionized work force, although the bank and the union did recently agree to a new contract. And some just think Laurentian will be doomed to be a small regional player — a big deal in Quebec but nothing in the rest of the country.

Meanwhile, Laurentian’s management is in the middle of transforming the company. Millions will be invested in new technology in an effort to catch up to competitors. Underperforming branches will switch focus to wealth management and mortgages rather than day-to-day banking. And more cash will be kept on the balance sheet, ready to be put to work in new opportunities. The company wants to generate comparable profit margins as its competitors by 2022.

While investors wait, they can collect a 6.4% dividend — a payout that has been hiked each year for a decade.

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 Nelson Smith owns Laurentian Bank of Canada and Bank of Nova Scotia shares. Bank of Nova Scotia is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »