In 2023, I’ve been greedily buying bank stocks. Thanks to the regional banking crisis that unfolded in the United States this spring, banks have generally gotten cheaper, while in many cases still growing their revenues and earnings. It is true that U.S. regional banks have become riskier than they were a year ago, but large Canadian banks are a different story.
Canada’s banking system is much more centralized than that of the U.S., with fewer big players. So, there is little reason to worry that Canadian banks will see their depositors leave en mass. In this article, I will explore two Canadian bank stocks that I like in 2023.
TD Bank
Toronto-Dominion Bank (TSX: TD) is a Canadian bank stock that I’ve owned for several years now. It’s among the most American of Canadian banks, with a large and growing U.S. retail business. Recently TD’s U.S. ambitions hit a setback, when U.S. regulators scuttled the bank’s planned merger with First Horizon. That deal would have added over $1 billion per year to TD’s earnings, but it got called off. On the plus side, TD did manage to close its acquisition of investment bank Cowen, which will add a few hundred million a year to TD’s earnings.
TD Bank is among the fastest-growing Canadian banks. Over the last five years, it has grown its revenue by 7% per year and its earnings by 8.8% per year. Both figures are above average; however, there is one big TSX bank that’s growing even faster, as I’ll show in the next section.
Bank of Montreal
Bank of Montreal (TSX: BMO) is Canada’s fastest-growing big bank. Over the last five years, it has grown its revenue by 7.8% per year and its earnings by 17% per year. For a bank, that is truly phenomenal growth. What’s more, it could be set to continue. BMO recently closed its deal to buy out Bank of the West from BNP Paribas. The deal will add about $1 billion a year in earnings power to Bank of Montreal. That’s much larger than TD’s Cowen deal, and it will really be a game changer for BMO’s profit potential. I’m expecting good things from this stock.
An American bank stock I’ve been buying
While Canadian banks are natural picks for Canadian investors, sometimes it pays to look into other countries’ banks. Because of their reputation for safety, Canadian banks tend to trade at somewhat richer valuations than American and European banks. Therefore, the real bargains in the banking space tend to be found in other markets.
This is one of the reasons why I’ve been buying Bank of America (NYSE: BAC) stock. Its stock hasn’t performed as well as TD or BMO over the last 12 months. In fact, it has taken a beating. The thing is, though, it has taken such a beating that it’s now starting to look like a real bargain.
At today’s prices, BAC trades at just 8.5 times earnings and 0.87 times book value. When you buy the stock, you’re technically getting more value than what you pay for! Of course, there’s a reason for that. Everybody is worried about the U.S. regional banking crisis and are concerned that BAC’s investment losses could put it in the same boat as the failed regional banks. However, Bank of America has excellent risk-management practices and some of the best liquidity in the business. Investors probably won’t go broke buying this stock.
