Are you looking to invest in bank stocks?
Are you a little unsure as to which bank is best for your buck?
It’s an understandable concern to have. Banking is a pretty complex industry, and there’s a lot of variability in how different banks perform. Some banks have given their shareholders great returns since the 2008/2009 financial crisis, while others have gone basically nowhere. In this article, I will explore three bank stocks that “shine on the bottom line,” meaning they deliver high profits and growth for their shareholders.
TD Bank
The Toronto-Dominion Bank (TSX: TD) is a Canadian bank with a large U.S. presence. It’s the ninth largest bank South of the Border, making it a truly profitable financial institution.
TD Bank’s U.S. presence is not just a mark of distinction for the company, it’s a source of real shareholder value. The Canadian financial services market offers only so much room to grow; mortgage origination is slowing down because many Canadians simply can’t afford houses. The U.S. is a much bigger market and, although its housing market is slow this year too, it’s not as richly valued as the Canadian market.
TD Bank has a 30% profit margin, suggesting excellent profitability. It also has a high return on equity (ROE) and a good growth track record. All in all, it’s a bank worth considering.
Bank of America
Bank of America (NYSE: BAC) is sort of an American version of TD. Much like TD, it is known for its strict risk management practices and high lending standards. However, its stock is even cheaper than TD’s right now, trading at a mere 8.5 times earnings. Bank of America got caught up in the panic about banks this past Spring. Many banks collapsed when depositors tried to withdraw their money and the banks didn’t have enough liquid assets to pay them off. A big part of the problem was “unrealized securities losses,” meaning treasury bonds going down in price. The banks that failed had a lot of such losses. Bank of America has them too, but the idea that BAC is at risk of failure because of its securities losses ignores the fact that its overall liquidity picture is very good.
EQB
EQB Inc (TSX: EQB) is an online only Canadian bank. Often described as Canada’s challenger bank, it has grown much more than the big six banks have over the last five years. In that period, EQB has grown its revenue at 22% per year and its earnings at 16% per year.
These are excellent growth rates for a bank, and EQB’s recent earnings suggest that the trend is still intact. In the second quarter, EQB beat analyst estimates on revenue as well as on profit. Growth for the quarter was strong, and the company indicated that it had high expectations for the rest of the year. Overall, it was a strong showing from Canada’s challenger bank – one that bodes well for the company’s fortunes in the years ahead.
Between TD, BAC and EQB, the world of banking has many great companies on offer. It always pays to analyze bank investments carefully, as there are opportunities in the space as well as risks.
