Big Banks Drop: Why Now is the Time to Buy

Bank stocks have fallen off the face of the earth, but should you see this as a potential buying opportunity? For these stocks, I’d say yes.

| More on:
a person watches a downward arrow crash through the floor

Source: Getty Images

American banks plummeted over the last week after the closure of SVB Financial Group, that came right on the heels of Silvergate. SVB was the go-to bank for tech startups in Silicon Valley, whereas Silvergate focused on cryptocurrency. Both are industries that have dropped heavily in the last year.

Not surprisingly, the closure of these banks led to a major drop in American bank shares across the board. The contagion then moved across the border to Canada, where the Big Six Banks all felt the sting.

Yet in my view, now is the time to buy. That is, if you’re a long-term holder looking for a deal. It doesn’t get much better than this, and you’re sure to see a rise, especially for these two bank stocks.

Royal Bank stock

Royal Bank of Canada (TSX:RY) wasn’t immune to the recent drop in bank stocks, even though it’s the largest of the Big Six Banks. With a market capitalization $182.5 billion, RBC stock has long claimed the top spot.

Yet this didn’t protect it from movements across the border. RBC stock is down 5.4% in the last month, falling 4% alone in the last few days, at the time of writing. However, in the last year alone, it’s only down by 1%. So what gives?

RBC stock remains at the top because it is prepared. This is true in a number of ways. The bank has provisions for loan losses to protect it from these drops. It has exposure to a diverse set of investments, including emerging markets and wealth and commercial management. All of this has created a lucrative business environment that will keep it afloat.

So afloat, in fact, that during downturns it takes about a year for the bank to return to pre-fall prices. After dropping 46% from peak to trough during the Great Recession, shares rebounded by July 2009. So, I would certainly take this time to look at the bank stocks and consider RBC stock for this reason. As well as its 3.9% dividend yield while it trades at 12.7 times earnings.

TD stock

RBC stock may be the largest by market cap, but Toronto Dominion Bank (TSX:TD) is a close second at $148.9 billion. Yet, the situation has been dramatically different compared to that of RBC stock, with shares down almost 13% in the last month alone.

The reason for this might be the choice that TD stock made when it comes to its own diversification. While it’s one of the bank stocks that has certainly entered the wealth and commercial management sector, it’s not as groomed as RBC stock.

Further, loan repayments are strong, and it offers a multitude of loan repayment options depending on your financial needs. This is great, of course, but it’s not going to exactly bring in an enormous amount of revenue compared to that of RBC. Even still, it’s certainly an improvement compared to the other bank stocks.

Then, there’s its exposure to the United States, as one of the top 10 banks in the country. While this might seem like a bad thing given the downturn, I’d argue it’s not. America tends to recover quickly, so exposure to Canada and the U.S. could be very good for TD stock.

Meanwhile, you can look to the past for how shares may perform. TD stock dropped about 50% from peak to trough during the Great Recession over almost a year. By September, it had recovered and climbed from there. Shares are now down 13.7% in the last year, dropping almost that much in a month. But again, it’s one of the bank stocks I’d hold while trading at 10.1 times earnings, and with a 4.48% dividend yield to boot.

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 has positions in Royal Bank Of Canada and Toronto-Dominion Bank. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Bank Stocks

Investor wonders if it's safe to buy stocks now
Bank Stocks

National Bank of Canada: Buy, Sell, or Hold in July 2025?

This big bank stock is a sound option for income investors in July for its positive momentum and strong showing…

Read more »

Asset Management
Bank Stocks

Best Stock to Buy Right Now: Royal Bank of Canada vs Toronto-Dominion Bank?

Royal Bank and TD Bank are on a roll. Is one still undervalued?

Read more »

Canadian dollars in a magnifying glass
Bank Stocks

Bank of Nova Scotia: Buy, Sell, or Hold?

Bank of Nova Scotia is up more than 15% from the April pullback. Are more gains on the way?

Read more »

a man celebrates his good fortune with a disco ball and confetti
Bank Stocks

Where Will CIBC Be in 10 Years?

With strong earnings growth, rising dividends, and a clear leadership plan, CIBC could be one of the best bank stocks…

Read more »

ways to boost income
Bank Stocks

Here’s How Many Shares of TD Bank You Need for $2,000 in Annual Dividends

Are you thinking of using TD Bank stock to boost your income? Here’s the simple math behind a $2,000 dividend…

Read more »

Hourglass and stock price chart
Bank Stocks

TD Bank Has Been a Quiet Winner in 2025: Is the Stock a Buy Now?

TD Bank (TSX:TD) stock's hot year-to-date rally could be just getting started.

Read more »

money goes up and down in balance
Dividend Stocks

2 Incredibly Cheap Growth Stocks to Buy Now

These two growth stocks are both unbelievably cheap and have significant long-term potential, making them some of the best to…

Read more »

coins jump into piggy bank
Bank Stocks

Best Stock to Buy Right Now: Bank of Montreal vs Bank of Nova Scotia?

The Bank of Nova Scotia (TSX:BNS) has a very high dividend yield.

Read more »