Today we’re going to take a look at three stocks on the TSX index that can offer peace of mind to a cautious investor. However, although all three stocks are expected to grow their earnings next year, only one of them is a strong buy – but which is it? From a Big Six banker to two regionalized options, here are three of the best financial stocks in Canada, selected for a low-risk investor.
With a beta of 1.07 relative to the TSX index, CIBC is only marginally more volatile than the TSX index, getting it off to a good start. Its one-year past earnings growth of 10.3% is fairly standard for a Big Six banker, while an average five-year earnings growth of 10.9% demonstrates the kind of plodding dependability a low risk investor looks for in a banking stock.
It’s an attractively valued stock with a price-to-earnings of 9.8 and near-market P/B. Bringing a beefy dividend yield of 5.06% to the table, it’s also expected to grow its earnings by 5.8% over the next couple of years. A word of caution, however: CIBC insiders have only sold shares in the past three months, with over $1 million worth of shares getting dumped, suggesting that confidence in growth may not be at its highest right now.
Laurentian Bank of Canada (TSX:LB)
Headquartered in Montreal, this gem of a banking stock is often touted as among the best outside of the Bay Street pack. A solid non-Big Six banker to add to the financials section of a portfolio, its $2 billion market cap and beta of 0.99 relative to the TSX index make for a fairly defensive play.
The stats show that Laurentian Bank of Canada is marginally superior to CIBC: at a glance, its five-year average earnings growth of 14.3% is higher by almost half, while its market ratios are a touch lower. Laurentian Bank of Canada also pays the higher dividend yield of 6.19% (one of the highest in the sector), and is looking forward to a more positive earnings growth of 9%.
Canadian Western Bank (TSX:CWB)
An undervalued star with a solid balance sheet and paying a +3% dividend yield, this is one of the better banking stocks on the TSX index, giving some of its larger competitors a serious run for their money. Its stats fall somewhere between those of the two previous bankers, though its five-year average earnings is on the lower end of the scale at 4.2%. The main reasons to buy would be a yield of 3.7% and a projected 8.3% growth in earnings.
The bottom line
Canadian Western Bank may be best avoided based on a single piece of data: its beta of 1.88 relative to the TSX index. Banking stocks are arguably the best value in times of uncertainty when they display low volatility. A high beta should be a red flag to a long-term investor with a low appetite for risk. Laurentian Bank of Canada has the lowest volatility on the list, meanwhile, and pays the highest dividend yield, giving CIBC some stiff competition on all fronts.
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Fool contributor Victoria Hetherington has no position in any of the stocks mentioned.