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TFSA Investors: These 3 Bank Stocks Are Too Cheap to Ignore!

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Banks are some of the cheapest stocks on the TSX. With P/E ratios hovering between 10 and 12, they’re far less expensive than most classes of equities. Unlike cheap stocks in the energy sector, the banks are also growing (albeit slowly), which means they can continue to pay or even raise dividends. Right now, any of the Big Six bank stocks would be cheaper than the average TSX stock. However, there are a few banks that stand out as being inexpensive, even for this very modestly valued sector. The following are three of the cheapest.

Canadian Imperial Bank of Commerce

Canadian Imperial Bank of Commerce is the cheapest Big Six bank, with a P/E ratio of just 9.74. As a largely domestic-focused bank, it has attracted some criticism for its slow growth prospects and exposure to deteriorating consumer credit.

It is true that CIBC is fairly domestic-oriented for the time being. However, the bank has ambitions to expand into foreign markets, and we’ve seen some encouraging signs on that front. CIBC’s U.S. division is currently small, but is growing every quarter. According to Fool contributor Chris Liew, the bank is aiming to have up to 25% of its earnings coming from foreign countries in the future. If that comes to pass, it could generate significant growth for the company, as we saw with TD’s foray into the States.

Laurentian Bank

Laurentian Bank of Canada is a small Quebec bank that does business mainly in its home province.

The bank’s stock started falling last year after it was discovered that it had issued hundreds of faulty mortgages. The bank was forced to buy back many of the mortgages it had issued, at a cost of $400 million. That’s a big hit to the balance sheet. It was followed up by a series of earnings misses in 2019, with net income down 33% in the first quarter and 13% in the third. In more encouraging news, Laurentian Bank recently had major success in a collective bargaining agreement that granted it many benefits, so the company may see reduced costs in the years ahead. However, this company’s earnings trend has undeniably been negative this year, so proceed with caution.

VersaBank

VersaBank is a small bank that touts itself as Canada’s only 100% online financial institution. With no branches, it’s a much leaner operation than your average big bank. And, as a small bank, it has much more room to grow. Year to date, the bank has increased its net income by 15%. That’s a much higher growth rate than you’ll get from any of the Big Six — even TD, with its mighty U.S. retail business.

Even with all this growth, VB only trades at 7.98 times earnings. That’s mighty cheap for a company growing at 15% year-over-year. While the company’s most recent quarter was weaker than the previous two, the long-term earnings trend is extremely encouraging, suggesting that this stock is a bargain relative to future cash flows.

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 owns shares of TORONTO-DOMINION BANK.

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