The performance of the financial sector has been far from dismal in 2023, but it also hasn’t been impressive. The index has been fluctuating all year and has fallen by about 4.25% since the beginning of 2023.
Leading the downward charge for the financial sector are the Big Six banks, almost all of which are quite attractively discounted right now. As well-established Aristocrats and generous dividend payers, the discounted state of Canadian bank stocks is naturally attracting a lot of investors. But it might be a good idea to wait.
The current banking sector slump isn’t over yet, and if your goal is to buy the bank stocks discounted, you should consider getting the best possible discount — i.e., when the stocks have reached the depth of the current slump.
The largest of the Big Six
Royal Bank of Canada (TSX:RY) is more than just the leader of the “banking” pack (the Big Six). It’s also the most valuable publicly traded company in Canada, adding another layer of safety and stability to this giant.
It’s also one of the best growth stocks in the sector. In the last decade, the bank returned about 68% to its investors through price appreciation, and that’s taking its current 22% discount into account (from its 2022 peak). The overall returns for that period are close to 150%.
The 22% discount, especially considering the long-term stability of this banking giant, seems attractive, but the current climate has to be taken into account. High inflation rates and their impact on the housing market (which has yet to fully materialize) may indicate tougher times ahead for the banking sector.
Also, even though the stock has been falling for some time now, the pace has expedited in the past few months. So, waiting and buying just before there is enough optimism in the market to reverse the course for these banking stocks might allow you to lock in an even more attractive yield than the current 4.7%.
The smallest of the Big Six
Despite being the smallest bank in the Big Six, National Bank of Canada (TSX:NA) is often the first pick of investors thanks to the powerful growth potential it offers. Its performance, especially over the last decade, has been the best compared to the rest in the Big Six, with Royal Bank following closely.
It’s just as stable as its larger counterparts, and considering its 16% discount, one of the smallest among the big six, and its undervaluation, it may be one of the best picks in the banking sector right now, especially if you are counting on a recovery. However, that doesn’t mean a recovery is on the horizon.
National Bank of Canada has experienced the largest slump of the year (spanning over three months), and the bottom of the slump is not in sight right now. Waiting for the stock to fall even harder can help you benefit from both a high yield and a stronger/more profitable recovery potential.
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Foolish takeaway
The two blue-chip stocks can make for powerful additions to your portfolio. They add growth and reliable dividends to your portfolio, and you can get the best of both return avenues by waiting for the maximum discount.
