The big banking crisis brewing down south may not be over with just yet. Warren Buffett recently remarked on the matter, highlighting the possibility that we’re not done with the bank failures. Still, the Oracle of Omaha implied that depositors will be safe.
Indeed, the U.S. has endured quite a few regional bank failures over the years. With jitters caused by Silicon Valley Bank’s poor risk-management moves, I think everybody (banks and beyond) is treading extra cautiously with any investment they seek to make. Indeed, all it takes are a few bank failures for risk appetite to go from high to low. As everyone makes moves to be extra cautious, I think there’s an opportunity to pounce on the names that are being unfairly oversold as a result of the market’s March jitters.
TD Bank stock: Too undervalued for its own good?
TD Bank (TSX:TD), Canada’s most American bank, has been on the receiving end of Mr. Market’s punishment over the past month. Silicon Valley Bank may be the first domino to fall, but let’s be real. Canada’s behemoth banks aren’t in any sort of trouble. The banks that boast a high concentration in particularly risky segments of the market (think the startup tech scene) may be on warning. Further, banks that “chase” yield in the bond markets could also be at risk of failure.
While TD does have U.S. exposure, it just does not fit the bill as a bank that could be under such a magnitude of horrific pressure. At the end of the day, Canadian banks are on another level. They have high capital requirements and should be viewed as the gold standard around the world.
Despite the high calibre of Canada’s top banking behemoths, the short-sellers have piled their bearish bets against TD Bank. Now, TD has its fair share of baggage. But is it “shortable?” Unless you’re willing to risk your shirt, I’d say it’s not, especially at today’s depressed valuations.
TD Bank vs. the shorts
TD Bank is up against it, with a recession closing in and its sizeable stake in Charles Schwab, which has been clobbered lately. Further, the bears seem to think TD is between a rock and a hard place, as it contemplates what it should do with its proposed First Horizons acquisition. Canada’s housing market could crack as rates stay higher. Further, there’s no telling which regional bank could be the next to fall.
In any case, I think TD Bank stock is a great bet for investors right here. Market strategist Brian Belski seems to think bank stocks provide a generational buying opportunity. I think he’s right on the money.
The bottom line for bank investors
Banks are hurting right now, but they won’t be in pain forever. Macro headwinds will pass. And when they do, I expect many will be kicking themselves, wondering why they didn’t buy big bank stocks, like TD, on the dip.
Indeed, many found themselves in that camp in the back half of 2020. Though recovery gains are likely to be less sharp, I still think TD and the broader basket are worth banking on amid their slumps.