In one sense, my forecast for 2020 is a mixed one. First, we’re certainly entering a bear market. However, it has also become clear to me that central banks have a vested interest in using all the tools at their disposal to drive stock prices higher, which includes quantitative easing measures.
From a Canadian perspective, I am extremely cautious with respect to the ability of Canadian banks to weather an extreme shock like the one that crippled the U.S. financial system a dozen years ago.
The sheer amount of leverage held by households, corporations and government in Canada is among the highest levels of all time. Thus, the rate of new debt generation gives me some serious pause.
Of course, not all Canadian banks are the same.
TD Bank
For those investors who absolutely need to be invested in Canadian banks right now, I’d recommend Toronto-Dominion Bank (TSX:TD)(NYSE:TD) for a few reasons.
The first, and probably most important reason, why TD continues to be my Canadian bank of choice is due to the lender’s outsized international exposure, particularly in the U.S., compared to its peers.
TD has done an incredible job of diversifying its business away from Canadian residential mortgages. I think this segment of the Canadian lending landscape will become problematic for many large Canadian banks.
The second reason I like TD bank relative to its peers is the aggressive nature through which TD has introduced technology into its retail network. The bank has the best retail network in the business. Indeed, TD has used technology to improve productivity and pave the way for higher levels of growth and profits over the long term.
Most of TD’s peers are in the dark ages with respect to technological advancements in retail banking. I therefore view the investments TD has made as a huge leg up in this competitive landscape.
Finally, TD has excellent fundamentals, which include impressive ROE and ROIC metrics. These metrics support the company’s 5% dividend yield and growth profile, which is unmatched in this sector.
TD simply checks more of the boxes for me. I think any investor interested in financials should create such a checklist and start checking boxes before investing.
Stay Foolish, my friends.
