Given how “narrow” the leadership group of the stock market rally has been over the past few quarters, I’d argue that there’s still a lot to love about this market if you’re a value investor. Indeed, some sectors tend to do a bit more heavy lifting than others at any given instance. These days, tech has helped propel the Nasdaq 100 to an incredible 40% gain year to date. The pace of gains can’t carry on forever. But that doesn’t mean they’re unsustainable, especially after a big down year for tech stocks.
As we move into the second half, I’d be inclined to rotate into some of the less-loved value names. At this juncture, the big bank stocks look incredibly undervalued, with room to run as investors shed their fears over a recession and a weakening consumer.
Without further ado, consider CIBC (TSX:CM) and TD Bank (TSX:TD) stocks, two passive-income value plays that could rise as the new bull market flexes its muscles.
CIBC
CIBC had quite a fall from glory, with the stock off more than 31% from its 2021 all-time high. It’s been a rather steep plunge into bear market territory for the $51.9 billion Canadian bank. As shares look to trade range bound ($55-60) again, I’d look to average into a position over time. Currently, the banking basket is under pressure due to a wide range of reasons.
From the recession to the rumbles south of the border during the fall of SVB Financial, I can see why many have soured on the banks. It’s never a good idea to bet against Canada’s banks, though, especially while valuations are low and yields are on the swollen side. At writing, CIBC stock yields 6.23%. That’s a secure payout that income seekers should not overlook, even as risk-free rates remain competitive for a longer duration.
TD Bank
TD Bank stock looks to finally be catching a bit of a break, with the stock now up nearly 7% from its 52-week lows. Undoubtedly, it’s been a hectic year for the $151 billion banking behemoth. From walking away from First Horizons to feeling the pressures of U.S. regional bank woes, it’s hard to remember a time (outside of a recession) when the bank has been this out of favour relative to the peer group.
Bet against TD stock at this juncture, and I think the odds of getting squeezed are high. Shares are cheap at 10.42 times trailing price to earnings, even given macro headwinds. The 4.77% dividend yield is also too good to pass up for the well-run bank that has a lot of runway to the upside now that expectations have been steadily lowered.
