Deal Alert: These Canadian Bank Stocks Are Looking Cheap

Scotiabank (TSX:BNS) and TD Bank (TSX:TD) may be getting too cheap to ignore for longer-term investors with time on their side.

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It’s a hard market to invest in for new investors who are easily rattled by volatility. Just because markets could get choppier does not mean the magnitude of risk is unbearable.

Though there are still plenty of risks that lie ahead, it’s important to remember that it’s more about how you manage the risks and how much risk Mr. Market is pricing in that’s critical.

There will always be risk in the world of stocks. Unless you’re going to lock in your cash in a GIC (Guaranteed Investment Certificate), you should be prepared for potential downside risks. These days, there are so many worrisome things on our radar — from higher rates and the impact on earnings to a recession that could brew in the near future.

Investing is all about risk and reward

Though such risks should never be ignored, I think there isn’t as much value in reacting to a slate of risks that the market has already had time to react to. At the end of the day, investors with long-term horizons don’t need to make any rash decisions here. If you’re in it for the next 10-20 years, stay calm, cool, and collected. That way, you’ll be able to make rational decisions, even if others around you are more inclined to make moves based on emotion.

With tech stocks experiencing considerable relief, it seems like the time to bet on the broader basket of technological innovators. Artificial intelligence is the hot, new trend, and tech valuations still look appealing compared to a year ago!

Though I think tech stocks have legs, I think value plays could benefit most from a broadening out of the stock market rally. Should the rally broaden out, I think overlooked value stocks may be able to help investors achieve some pretty good results relative to the risks they’ll have to put up with.

Consider shares of Scotiabank (TSX:BNS) and TD Bank (TSX:TD) — two Canadian bank stocks that I view as cheap after their latest stumbles.

Scotiabank and TD Bank: Rocked from bank volatility

The big banks aren’t too loved these days, with BNS stock now nearly 30% off its 2022 highs. At $66 and change per share, BNS stock is in a tough spot, as the Canadian economy begins to feel more of the pressure applied by higher interest rates. We’ve heard a lot of recession chatter of late. The U.S. regional bank failures in March certainly did not help give the financials a jolt.

As regional bank depositor confidence is tested, I think it’s the behemoth-sized banks that stand to gain. Why?

The smaller regional players seem to be feeling more of the shockwaves from the U.S. regional banking selloff. Larger banks, especially on this side of the border, have still wobbled, but they’re far from serious trouble. You could make the argument that bank woes are overblown. Though I expect analysts could downgrade the banks, as the banking selloff continues, I think contrarians will be the ones that’ll be proven right over the long term.

Scotiabank’s international focus makes it a great play for Canadians to get exposure to international banking — specifically, the Latin American region. Further, TD Bank’s U.S. exposure will work against it until it doesn’t. Once the U.S. regional banking scene stabilizes, I think TD stock could be in for a swift recovery.

In the meantime, TD and BNS stocks are getting quite cheap, in my opinion.

TD and BNS both trade at just north of nine times trailing price-to-earnings. Yes, there’s some risk baked in. But how much is too much?

Only time will tell. Regardless, I’m a fan of the valuations, even as others turn their backs. Canada’s banks are solid. They’ll get through these tough conditions in time.

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 Toronto-Dominion Bank. The Motley Fool recommends Bank Of Nova Scotia. The Motley Fool has a disclosure policy.

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