New investors don’t need to overcomplicate things when it comes to getting into the market waters for the first time. Undoubtedly, market volatility and correction calls by various pundits can make investing seem like a scary game. Though there may be sector- or theme-focused bubbles brewing in markets at any given time, I’d argue that by keeping it simple and sticking within one’s circle of competence, one can steer clear of trouble, even in a market that’s bracing itself for a recession or something of the sort.
In this piece, we’ll have a closer look at two Canadian bank stocks that I think have become so unloved that they may offer some of the best risk/reward tradeoffs in the market right now. Indeed, bank stocks may not skyrocket in the same way that many artificial intelligence stocks did earlier this year. However, they do have nice, slightly swollen dividend yields, and the valuations aren’t all too bad at this juncture.
Of course, a recession can always bring forth more downside risk than expected. But after a rocky quarter for Canada’s top banks, I think a lot of the bank sector fears are already well known by many at this point.
Whenever there’s nothing but risk on the radar of others, you may have an opportunity, as a contrarian, to get a bit more for your invested buck!
Without further ado, let’s look at two bank stocks that could make for intriguing pickups, whether you’re a beginner investor looking to tame a choppy TSX or a seasoned investor who’s just looking for a decent value for money.
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Canadian bank stock #1: CIBC
First up, we have CIBC (TSX: CM), an underrated bank that has a fairly sizeable amount of exposure to Canada’s hot housing market. With rates continuing to rise, there’s some worry that the Canadian housing market could begin to feel a bit of the heat.
Regardless, such domestic housing risks, I believe, have factored its way into the valuation of CIBC shares a long time ago. When it comes to stocks, you must consider what most others aren’t at any given instance. As the Bank of Canada nears peak rates, there’s a good chance that the rate jitters may be a tad overblown.
Sure, provisions and earnings-eroding headwinds are to be expected in a recession. And though the housing market may show its fickle side, I simply don’t see a catastrophic housing market crash. In any case, CIBC stock is down over 31% from its all-time high hit earlier last year.
With a 6.14% dividend yield and a modest 11 times trailing price-to-earnings multiple, I view the stock as sporting a nice margin of safety if Canada’s coming recession isn’t all too rocky.
Canadian bank stock #2: TD Bank
TD Bank (TSX: TD) is a Canadian bank with a growing presence south of the border. It’s been a rough ride for shares of TD Bank this year, thanks in part to the U.S. regional banking blow-up, which, more or less, appears to have settled in recent months.
Indeed, this year’s big story was TD’s bold move to walk away from the acquisition of First Horizons Bank amid the chaos and volatility down south. As a result, TD is likely a bit too well capitalized. It’s far better to be overcapitalized than undercapitalized, though.
In due time, I think TD will return to the U.S. regional acquisition track. Until then, TD stock is down and out, offering new investors a nice dividend (4.6%) at a cheap price of admission (10.6 times trailing price to earnings)!
