Financial stocks haven’t been the best performers this year, especially the big bank stocks, which pretty much seem like dead money to many investors who lack patience. Undoubtedly, the prolonged period of weak performance could carry into year’s end, as quarters feel the pinch of provisions for credit losses (or PCLs).
Things aren’t looking all too upbeat for the broader basket of life insurers, either. In any case, long-term investors should look to the dip in the Canadian financials as an opportunity to load up on a few names while they’re still trading at discounted levels. Indeed, sometimes the market’s best deals are delivered when most others are ready to throw in the towel, either due to negative momentum or a lack of upside action.
Of course, higher rates may be welcomed for certain financials. However, if high rates come at the cost of a weaker economy, the net effect has the potential to be quite negative. In any case, it’s not hard to imagine that so many macro headwinds have already been factored into share prices at this juncture.
As long as you have realistic expectations (such battered financial stocks aren’t going to double overnight), a long-term horizon, and contentment with solid dividends, I think various TSX financial stocks are ripe for buying right here, right now. In this piece, we’ll check out two.
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American Express
American Express (NYSE: AXP) is a pretty intriguing credit card firm that’s starting to get cheap, especially relative to its bigger brothers in the credit card scene. Undoubtedly, American Express (or Amex as it’s often referred to in its short form) has all the traits of a great business.
As an insurer and payment processor of credit cards, the firm gets a bigger slice of the pie whenever a cardholder makes a purchase with their Amex card. Though Amex isn’t nearly as widely accepted as its peers in Canada, I’d argue the firm has done a good job of closing the gap, bringing on new merchants while sweetening the pot for its cardholders.
Finally, customer service and the firm’s rich history make the Amex brand very moat-worthy. Further, its card can be like a status symbol (especially the Platinum and Gold cards, or Cobalt for those living in Canada), given its wealthier customer base. At current levels, I view shares as a great financial play to bet on while it’s still off more than 20% from its high.
National Bank of Canada
For investors willing to stick in Canada, National Bank of Canada (TSX: NA) stands out as the top bank stock to bet on. Though National Bank is a smaller Big Six player, it is also a top performer over the past five years, with 44% gains put in over the timespan. That’s a heck of a lot better than its larger banking peers, many of which are flat or lower in the last five years.
Now, past performance doesn’t guarantee future results. However, the relative outperformance is hard to overlook, especially for those who have soured on the banks for their lack of movement over a fairly long-term time period.
The stock’s off around 15% from its high but seems like a great value at just 9.44 times trailing price to earnings, with its 4.65% dividend yield. I think it can outpace its peers from here.
