With markets cooling off after a hot January, all eyes are on April and the beginning of the second quarter of 2023. A recession could touch down in the latter part of the quarter. Still, Tax-Free Savings Account (TFSA) investors need not go into a panic, as it seems unlikely that we’re due for the second coming of 2008.
Sure, there were a number of U.S. regional bank failures. However, the situation seems more contained than during the Great Financial Crisis. Further, a re-evaluation of regulations could help prevent other similar disasters from happening in the future. Indeed, the combo of plunging tech stocks and failing banks has fueled lots of investor anxiety.
As things settle down in April and the U.S. Federal Reserve moves closer to the end of its tightening cycle, markets may have the means to sustainably power higher again, even as a recession looks to become official. With a Fed that’s willing to hit the pause button sometime soon, I think the focus has shifted to inflation and earnings. Will inflation allow the Fed to hold off? And will recent rate hikes be shrugged off by firms without causing more market turbulence?
It’s hard to say. Regardless, TFSA investors should focus on buying value, even with the slate of risks on the table. If you consider such risks in your valuation of a particular company, you can still justify buying stocks in the face of an economic downturn.
In this piece, we’ll look at one intriguing stock I’d be willing to stash in my TFSA for the long run.
Bank of Montreal
Bank of Montreal (TSX:BMO) is a Canadian bank that’s slipped in recent weeks, thanks to the U.S. regional banking failures in the states. Undoubtedly, there’s no contagion that’s going to cause Bank of Montreal to fall to its knees.
Like most other Canadian banks, Bank of Montreal is well capitalized. Actually, it’s one of the best-capitalized banks in the world, given Canada’s high standards, calling for tier-one capital ratios. Larger reserves seem unnecessary when times are good, and the bull is in the driver’s seat. However, as you know, things can turn very quickly in a hurry. It didn’t take very long for Silicon Valley Bank to fall. The whole ordeal happened in less than two days.
Though Bank of Montreal’s U.S. business looks like a weak spot right now, I think it won’t be long until it’s a source of premium valuation again. U.S. banking is a source of growth. Though the Bank of the West deal now seems somewhat less timely, I do think risks from the bank won’t be a source of trouble. In short, investors need not worry as BMO has brilliant risk managers running the show.
At 7.4 times trailing price to earnings, BMO stock is one of the cheapest Canadian banks out there. The 4.9% yield is also so enticing!
Bottom line
BMO stock is down more than 23% from its all-time high. The U.S. banking turbulence has spread into the name. As the dust settles across U.S. regionals, look for BMO stock to inch higher again. Bank of Montreal is a very well-run bank, and the recent panic-selling on the back of U.S. bank weakness seems overdone.
