Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) continues to be my top pick among Canada’s banks these days, as the company continues to gain market share in its key markets on the back of several key acquisitions over the past 18 months and strategic investments towards its digital banking initiatives.
Yet, despite what appears to be a bright and promising future for North America’s third-largest bank by assets, performance in BNS shares has underperformed those of its Canadian peer group, making this a solid and very interesting relative value play.
It would be fair to attribute a solid chunk of that underperformance to BNS’s relative over-weighting to the Canadian personal and commercial lending market — a segment that’s struggled to gain traction amid chronic over indebtedness among Canadian households and stagnating interest rates.
However, recent investments in not only digital and faster-growing emerging markets should help to offset some of that risk while helping the firm to diversify long term; meanwhile, several key acquisitions in Canada’s wealth management space should go a long way to driving higher fee revenues and helping to offset lower earnings from interest charges.
Teck Resources (TSX: TECK.B)(NYSE: TECK) reported a second quarter that came in under its results from the year-ago period, yet CEO Don Lindsay remains confident in the company’s continued progress towards its long-term goals, including returning available excess cash to its shareholder base.
In the second quarter, TECK announced it increased the company’s previously authorized share-buyback program by $600 million, bringing the total dollar value to around $1 billion.
Trading at just five times trailing earnings, the decision to buy TECK stock at this time seems appropriate not only for management but for investors as well.
While copper prices have been a drag on performance so far in 2019, there should be several tailwinds acting to fuel additional demand for the red metal over the coming decade, including as a key element of not only electric vehicles but renewable energy projects and electrical applications.
While I like the long-term prospects for Scotiabank thanks to its intensive focus on both digital and international, I still think Canadian Imperial Bank of Commerce (TSX: CM)(NYSE: CM) is offering investors the best dividend among Canada’s banks.
Yielding 5.63% right now, CIBC is trading at the highest dividend yield among its peers (Bank of Nova Scotia is second), and that dividend is well supported by a strong base of cash flows and earnings, including double-digit returns on equity and a conservative dividend-payout ratio that sits below 50%.
Like Scotiabank, CM also has more exposure to the Canadian lending market than some of its other, larger peers, including Royal Bank of Canada and Toronto-Dominion Bank, Canada’s two largest lending institutions.
But one has to wonder if that isn’t already being “baked in” to CM’s current share price with the shares already trading at a significant discount to those two based on its current trailing P/E ratio.
