Canadians looking for the next big thing have been keeping their eyes on Canadian National Railway (TSX:CNR)(NYSE:CNI). The company looks like it will be the winner in the acquisition of Kansas City Southern, expanding its reach across North America. Yet recently, investors may have shifted their attention to a former CEO of CNR, Claude Mongeau, who made a huge investment in a bank stock last week, sending others scrambling for the stock.
However, if you’re still looking for a deal, it does exist. You can still pick up this bank stock and practically guarantee you’ll see superior growth. Here’s what happened.
On May 31, former CEO and president of CNR Claude Mongeau invested over $800,000 in shares of Toronto-Dominion Bank (TSX:TD)(NYSE:TD). Mongeau bought up 9,240 shares at $86.63 per share. This increased his account’s holdings to 45,787 shares.
Now here’s where things get interesting. While Mongeau is no longer the CEO and president of CNR, he has since been appointed to the board of directors for TD stock and has been there since 2015. This means it’s an insider trade, so there is knowledge there that the rest of us may not have on hand.
So what could have made Mongeau want to invest so much in this bank stock?
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Backing up stellar earnings
TD stock recently jumped as the bank reported soaring profits during its recent earnings report. The bank stock said earnings were driven by mortgage growth, and also loan-loss provision recovery. The company earned $3.7 billion or $1.99 per share, more than double the same quarter last year.
But TD stock doesn’t believe growth is about to end. As COVID-19 continues to recover, with the worst likely over, the bank believes that businesses will now start coming back as mortgage loans slow. The retail division benefited from the strong growth in mortgage originations and credit card transactions, along with the wealth and insurance departments. While the bank stock believes housing will remain consistent, it’s looking forward to business growth.
Now that mortgages are bound to slow, management believes that an economic recovery will lead to businesses renewing loans without fear of losing sales. This will lead to a renewed increase in revenue. Coupled with its current growth, the bank stock is likely to see a massive increase in revenue over the next year and beyond.
Analysts recently upgraded TD stock to $94 per share. That’s a potential upside of 7% as of writing.
But is it valuable?
In short: yes. Even though shares have climbed, I would still consider TD stock to be valuable. The company has seen share growth of 51% in the last year. On top of that, shares are up 218% in the last decade for a compound annual growth rate (CAGR) of 12.3% as of writing.
Then there’s the company’s dividend, which was recently increased. Today that dividend sits at 3.61%. And even with all this share and dividend growth, the company’s multiples make it a value bank stock. Shares trade at 1.8 times book value, and 3.9 times sales, with an incredible 11.3 price to earnings ratio.
So yes, TD stock is definitely one I would consider adding to your portfolio. The company is set up for superior returns in the next year and beyond. That makes it a fantastic bank stock to add to your forever portfolio.
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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 Amy Legate-Wolfe owns shares of TORONTO-DOMINION BANK. David Gardner owns shares of Canadian National Railway. The Motley Fool recommends Canadian National Railway and Canadian National Railway.