2 Undervalued Bank Stocks to Buy Now

I remain bullish on banks, as the credit performance is expected to improve. These banks are trading at discounted valuations.

| More on:
edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.

Image source: Getty Images

With the worst likely to be over, the interest in bank stocks could increase. I remain bullish on banks, as the credit performance is expected to improve, reflecting the uptick in economic activities and positive vaccine data. Initiatives to control expenses and a sequential decline in provision for credit losses are likely to support profitability. 

Let’s focus on two top TSX bank stocks trading at a discounted valuation compared to peers and offer good value at the current levels.

Bank of Montreal 

Bank of Montreal (TSX:BMO)(NYSE:BMO) stock has recouped all of its losses and is now trading in the positive territory. Despite the steep recovery in its stock, Bank of Montreal is trading at a discounted valuation compared to its peers. 

Bank of Montreal stock is trading at a price-to-tangible book value of 1.5, reflecting a discount of 21% compared to the peer group average of 1.9. Bank of Montreal’s low valuation and diversified business mix position it well to benefit from the improving outlook. 

Sustained momentum in Bank of Montreal’s personal and commercial banking segment, strong deposit base, credit offtake, and acquisition of new clients are likely to push its stock higher. It remains well capitalized and is focusing on expense rationalization. 

Bank of Montreal is also known for its robust dividend payments. It has been paying dividends for the past 191 years. Meanwhile, its dividends have grown at a compound annual growth rate of 6% in the past 15 years.    

Bank of Montreal’s low valuation, strength in the core business, and an attractive dividend yield of 4.4% make it a top bank stock to buy and hold for strong returns.

Bank of Nova Scotia

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is another top stock offering great value and income. The reopening of the economy and positive development on the COVID-19 vaccine front led to a healthy recovery in its stock. However, it’s still trading at a discount compared to peers. 

It is trading at a price-to-tangible book value of 1.6, reflecting a discount of 20% compared to the peer group average. It offers an attractive dividend yield of 5.6%. 

Bank of Nova Scotia’s diversified geographic footprint, exposure to high-quality growth markets, and sustained momentum in the core business are likely to drive its financials. Meanwhile, continued growth in loans and deposits and stable P&C (personal & commercial) banking and wealth business should help it navigate the current crisis. 

Thanks to its high-quality earnings base, Bank of Nova Scotia has raised its dividend in 43 of the past 45 years. It has been paying dividends since 1833. 

Final thoughts 

Shares of both these Canadian lenders look appealing at the current levels. Not only are these bank stocks trading at discounted valuations compared to peers, but they are also trading at lower multiples when compared to their historical average. 

Besides offering great value, both these banks are expected to boost shareholders’ returns through consistent dividend payments. With the improving operating environment, investors can expect continued dividend hikes in the coming years. 

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 Sneha Nahata has no position in any of the stocks mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »