We are a little over a month away from the United States presidential election that will take place on Tuesday, November 3. Earlier this month, I’d discussed the possibility of a contested U.S. election. Both candidates have traded escalating invective, as the campaign takes place in the shadow of a devastating global pandemic.
Today, I want to look at two Canadian bank stocks that have a large footprint south of the border. How should investors approach these stocks ahead of the election?
How the U.S. election could influence Canada’s second-largest bank stock
Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is the second-largest Canadian bank stock by market cap on the TSX. Shares of TD Bank have dropped 14% in 2020 as of close on September 23. The bank stock is down 17% year over year.
This Canadian bank boasts a massive U.S. footprint. Indeed, it is one of the top 10 retail banks in the country. In Q3 2020, TD Bank saw net income drop 48% from the prior year to $673 million. However, TD Ameritrade climbed 8% year over year to $317 million. Like its peers, TD Bank has moved to bolster its digital offerings during this pandemic. What impact could the U.S. election have on TD Bank?
In the event of a contested election, investors should expect near-term destabilization in domestic and global markets. However, both candidates have historically been friendly to Wall Street. Regardless of the electoral outcome, banks can expect a friend in the White House.
Shares of TD Bank last possessed a price-to-earnings (P/E) ratio of 11 and a price-to-book (P/B) value of 1.2. This puts the bank stock in favourable value territory. Moreover, TD Bank offers a quarterly dividend of $0.79 per share. This represents a strong 5.2% yield.
BMO also has a big presence south of the border
Bank of Montreal (TSX:BMO)(NYSE:BMO) also boasts a large U.S. footprint. Its stock has fallen 19% so far this year. However, shares are up 2.8% month over month. The bank released its third-quarter 2020 results on August 25.
Net income dropped to $1.23 billion compared to $1.55 billion in Q3 2019. Adjusted earnings per share also fell to $1.85 over $2.38 in the previous year. Reported net income came in at $263 million compared to $368 million in Q3 2019. In the quarter, BMO was among eight select U.S. banks chosen to offer mobile-first chequing accounts managed via Google Pay. Like TD Bank, BMO is working hard to boost the quality of its digital offerings.
Drama in the U.S. election could negatively impact BMO in the same way that TD Bank could be hurt. Fortunately, BMO will also benefit from policies that will be friendly to the financial sector.
Shares of this bank stock last had a P/E ratio of 11 and a P/B value of one. This puts the bank stock in attractive value territory. BMO offers a quarterly dividend of $1.06 per share, which represents a 5.5% yield.
The upcoming U.S. election carries risks for the financial world, but in the long term, these bank stocks are still worth trusting. TD Bank and BMO still offers solid value and strong income right now.
