Revealed: The #1 Bank Stock on My 2023 Summer Shopping List

TD Bank (TSX:TD) is one of my favourite bank stocks going into the summer months.

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It’s hard to remember the last time the big bank stocks were this out of favour. Indeed, the U.S. regional banks have been the biggest sore spot in the financial industry since March. Though bank runs and regional pressures may continue for some time, I think investors seeking a contrarian bargain should embrace the volatility while investor anxiety remains on the high side.

Indeed, regional banks haven’t looked this ugly in quite a while. Though there may be deep value to be had in some of the smaller players, I’d argue that the risk/reward scenario is better with the big banks. Further, I like Canadian banks more than the U.S. ones. Canada’s top banks are extremely well capitalized. It’s as though they were built to persevere through even the toughest of recessions.

Bank stocks sink ahead of the summer season

Though a few Canadian banks, TD Bank (TSX:TD) included, have looked south of the border to the regional players for growth, I’d argue that recent fear and volatility surrounding U.S.-heavy Canadian banks aren’t necessary.

Yes, TD deserves to feel some pressure as U.S. banks go down. Its stake in Charles Schwab (NYSE:SCHW) may be acting as a drag but likely not for too long.

Schwab’s latest round of earnings results weren’t that bad. The firm actually brought in new customers, even in March, when regional banks were in panic mode. For TD, Schwab’s first quarter should have been a huge breath of relief.

With the TD-First Horizons merger now off the table, TD investors have yet another reason to be optimistic. Slowly but steadily, the magnitude of uncertainties is starting to seem more manageable.

I thought TD stock should have surged higher after news broke that TD would be walking away from its First Horizons deal. I think lingering U.S. regional bank fears are still partially dragging down TD. As the dust settles of the crisis south of the border, TD may have the means to continue its rally.

TD Bank stock: Looks so unloved at around $82 and change!

TD Bank stock has crept higher in recent weeks after bottoming out in late March at around $77 and change per share. Today, TD goes for closer to $82 per share. Though the relief rally has stalled out, I think TD has more upside, even as analysts sour on the name and the rest of the Big Six bank stocks.

Recently, Barclays went from positive to neutral on the broader basket of Canadian bank stocks. Undoubtedly, quarterly earnings results could be a real nail-biter for shareholders. With a recession that may soon be approaching, the environment certainly looks tough. Still, longer-term investors committed to sticking around well after the recession works its course shouldn’t be deterred by bank stocks, as some of them look to flirt with 52-week lows.

TD is one of the less-loved (and most-shorted) Canadian banks in the space these days. But that’s one of the reasons why I like it so much. Whenever you can be a buyer when there are so many sellers, your odds of capturing a stock priced below intrinsic value may be that much higher.

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.

Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Fool contributor Joey Frenette has positions in Toronto-Dominion Bank. The Motley Fool recommends Charles Schwab. The Motley Fool has a disclosure policy.

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