The failure of SVB Financial has sent a wave of fright across the U.S. banking scene. The shockwaves have been felt up here in Canada, with Big Six giants in TD Bank (TSX:TD) and Bank of Montreal (TSX:BMO) also feeling the selling pressure. Indeed, the collapse of SVB, or Silicon Valley Bank, seems mostly contained to the regional players with too much tech exposure. Further, SVB made a mistake by reaching a tad too far for a bit more yield at a time when risks in the fixed-income markets were elevated.
Undoubtedly, mistakes were made, but investors need not panic over a contagion that works its way up to Canada. For now, regional banks are scarier plays. Many tend to be less diversified, both geographically and in the industries of the clients it serves. Further, Canada’s big banks are incredibly well capitalized. They could make it through a storm that’s far worse. As such, I view recent volatility in the Canadian bank stocks as completely overblown.
At the end of the day, Canada’s banks are among the strongest out there. Though they do take hits when economic winds get rougher, those who can stomach such choppy moves can improve their odds of getting more bang per buck.
Without further ado, let’s check out TD and BMO stocks to see where they stand amid SVB chaos.
TD Bank stock
TD Bank is a wonderful bank that’s right back to 52-week lows of around $88 per share. The recent SVB scare has caused many to hit the sell button, just because banks are out of favour. After the latest slide, TD stock trades at 9.8 times trailing price to earnings (P/E). That’s a historically cheap multiple that also accompanies a huge 4.75% dividend yield.
Indeed, the banking dip has made TD a cheaper play that’s better able to help new investors fight inflation. At around $88, TD stock seems to be sitting on support. In any case, I think TD stock becomes considerably more attractive, as its yield eclipses 5%.
With the First Horizons deal up in the air, I’d look to be a buyer while others grow worried about industry risks that mostly seem contained.
BMO stock
Bank of Montreal stock has also felt a hit in recent weeks. The stock was already cheap after the latest SVB slip. Now, BMO looks like a deep-value play that’s hiding in plain sight. At 7.5 times trailing P/E, with a 4.8% dividend yield, BMO stock is a kingpin that trades like some sort of value trap.
Sure, provisions will weigh, but BMO has what it takes to move on from the past week of fears that could prove overblown with time. Not all banks are created equal. BMO and TD are best-in-breed banks, with more than enough to prepare for a rainy day. For that reason, I plan to continue nibbling away at shares of both companies on further weakness. Yes, there’s pain ahead, but in the long term, I think bank stocks will remain wonderful investments for those seeking to build a nest egg.
BMO vs. TD stock: Better buy amid SVB collapse?
TD and BMO stocks are both great bets. If I had to choose one, I’d go with TD Bank stock. It’s headed by the brilliant Chief Executive Officer Bharat Masrani — a manager who’s more than capable of navigating through hard economies.
