Looking to pick up income-producing stocks on the cheap?
The Canadian banking sector abounds with opportunities that fit the bill. Despite the bull market of the first half of 2019, many Canadian bank stocks still trade at less than 10 times earnings, making them cheaper than most TSX stocks. Although many of these stocks have been beaten down for good reason, some of them still have upside.
Of course, you’re not going to get ultra-high returns by buying Canadian banks. But the cheap prices in the banking sector mean that you can generate some serious income with them. The following are three Canadian banks currently trading at less than 11 times earnings.
Laurentian Bank of Canada
Laurentian Bank of Canada (TSX:LB) is a small bank based out of Quebec. A few years ago, it ran into trouble when it was caught selling faulty mortgages and had to buy back some $88-$150 million worth of them. Since then, the bank’s stock has been getting hammered in the markets: since December of 2017, it’s down 26%.
Long-term LB holders are probably kicking themselves, but buying the stock now may be a different story. Though the bank’s most recent quarter was widely seen as a disappointment, with lower mortgage revenue than in the same quarter a year before, the company may be able to stage a comeback. In its Q2 earnings release, management said that it was pivoting from mortgage loans to high-yield commercial loans — a move that could power growth in the future. We’ll have to wait and see whether that bears fruit, but in the meantime, the stock is already a 5.8% yielder with a 10.87 P/E ratio.
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Canadian Imperial Bank of Commerce
Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) is a bank that’s fallen on hard times but may not be as hard up as it looks. The company attracted some heat after it was revealed that U.S. hedge funds were betting against it, owing to its exposure to then-fragile consumer debt and housing markets. Since then, however, housing has picked up and CIBC’s PCLs have gone down slightly.
In its most recent quarter, the bank’s profit climbed 2% — not exactly frothy growth, but a darn sight better than the 11% decline it posted in the quarter prior.
With tepid earnings growth, CIBC is probably not going to be seeing huge gains. However, its stock is ultra-cheap, with a 9.2 P/E ratio, and a 5.4% dividend yield.
VersaBank (TSX:VB) is one of the most interesting banks in Canada. Eschewing traditional branches, the company instead operates a fully online retail bank.
VersaBank is widely considered to be one of the most tech-savvy banks in Canada, a company that’s as much a fintech startup as a chartered bank. The company’s stock has had a volatile ride over the years, but there have been many opportunities to profit from the upswings. For example, if you’d bought in August of 2017, you’d be up some 60% today.
Despite this solid two-year run, the bank’s stock is ultra-cheap at just 8.37 times earnings. It also boasts a dividend, although at 1.16%, its yield is among the weakest of Canadian banks.
Probably not the safest or most dependable bank out there, but an ultra-cheap stock that could have upside if its fintech innovations pan out.
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 Andrew Button has no position in any of the stocks mentioned.