BMO Stock Is Down 21.5% From its High: Time to Buy In?

Bank of Montreal (TSX:BMO) stock is in a bear market but could be in a spot to make up for lost time in the second half of the year.

| More on:
analyze data

Image source: Getty Images

The Canadian banks have been beaten down quite badly over the past year. The U.S. banking crisis led caused several big banks, including Bank of Montreal (TSX:BMO), to add to their losses in March. Though the failure of Silicon Valley Bank (SVB), Signature Bank, and Credit Suisse came fast and furious, I don’t think Canada’s Big Six banking giants should have been under as much pressure as they were.

Undoubtedly, Bank of Montreal felt a bit more pressure than some of its peers due to its U.S. presence. Though BMO isn’t the most U.S.-focused bank in Canada (that title would go to TD Bank), the acquisition of U.S. regional player Bank of the West didn’t seem to do the firm any favours this time of year.

For now, U.S. banking fears seem to have calmed. Though only time will tell what the next move will be, with some industry pundits calling for more pressure ahead. Even if a few more regional banks are poised to flop due to overinvestments in long-duration bonds, BMO is not a bank that will be knocked out from this mini-banking crisis.

BMO stock: Built to make it through hard times, too

BMO survived the Great Financial Crisis of 2008. And it’s poised to sail through the more challenging recession that some believe will land in the second half of 2023. Like it or not, the Big Six banks have tier-one capital ratios, meaning they have a lot of financial wiggle room to make it through a period of economic chaos.

Though recession-driven loan losses and pressure from mortgage books could weigh on capital ratios, I still view the big banks as having more than enough to make it through a hard-landing type of economic downturn.

Down around 21.5% from its all-time high of $152 and change per share, I view BMO stock as an intriguing value for long-term investors. The stock trades at 7.56 times trailing price to earnings, with a 4.76% dividend yield. The depressed multiple and juicy dividend yield are the stars of the show. However, it takes guts to get into a bank stock at a time like this. Like during 2020 or 2008, banks were scary places to be. When the going gets tough, it’s these scary places that tend to offer the biggest long-term bang for your buck.

While shares of BMO could certainly get cheaper over the course of the year, I think averaging down into the name could prove wise. It’s never easy to catch a falling knife or try to tame a bear market. However, BMO remains a well-run bank that can deal with losses in its bond portfolio. Further, BMO has hedges in place (interest rate swaps) that can help dampen the blow to bond portfolios caused by the recent uptick in interest rates.

The Foolish bottom line for investors

Banks aren’t spared when the stock market takes a dive. However, those willing to hold for at least 10 years don’t have to wait for the storm to calm before dipping a toe in the waters. The 4.76% yield is well covered and will likely keep on growing from here.

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 Joey Frenette has positions in Bank Of Montreal 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

Pile of Canadian dollar bills in various denominations
Bank Stocks

Invest $10,000 in This Dividend Stock for $1,291 in Passive Income

EQB is a cheap dividend stock trading at a discount to consensus price target estimates.

Read more »

Piggy bank next to a financial report
Stocks for Beginners

Is It Finally the Right Time to Buy Bank Stocks?

Canadian bank stocks are some of the most secure investments out there, but of them all, this bank stock is…

Read more »

Bank Stocks

Down 11%, Should Investors Buy TD Stock Ahead of Earnings?

Sure, TD stock offers a deal at these prices. But is it worth the risk after the bank's anti-money-laundering investigation?

Read more »

Growing plant shoots on coins
Bank Stocks

RBC Stock: Rock Solid for Dividends and Growth

RBC (TSX:RY) stock has long been the biggest stock on the TSX, but there are many reasons the company should…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Bank Stocks

How to Use Your TFSA to Earn $4,750 in Annual Passive Income

Bank stocks like the Toronto-Dominion Bank (TSX:TD) can produce over $4,750 in a maxed out TFSA.

Read more »

Glass piggy bank
Dividend Stocks

Prediction: These 2 Canadian Bank Stocks Are Next in Line to Pop

These two Canadian banks are climbing, but still have so much more room to run. And with the highest dividend…

Read more »

Golden crown on a red velvet background
Dividend Stocks

Dividend Royalty: 2 Fabulous Stocks to Buy Now for Decades of Passive Income

Two blue-chip stocks from the banking and energy sectors are excellent sources of pension-like income.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Bank Stocks

Want to Be a TFSA Millionaire? The CRA Says ‘Watch Out’

Holding blue chip stocks like Royal Bank of Canada (TSX:RY) is preferable to trying to get rich trading options.

Read more »