The bank stocks were beaten and bruised badly through most of last year. And though the environment that lies ahead may be no less tumultuous, I still think the risk/reward and dividend yields to be had at these levels are close to the most enticing in many years. It’s easy to give up on bank stocks. They’re not nearly as growthy as your average high-tech growth plays atop the Nasdaq 100 exchange, after all.
With so much interest in hot AI tech, it’s not a mystery as to why traditional value plays (think the banks) have fallen so heavily out of favour. Why bet on the bank stocks if provisions and meagre loan growth are to be expected over the foreseeable future? A recession could still present itself at any time this year, after all!
Further, various fintech firms stand to erode the moats of the top bank stocks over time. Though fintech stocks have crashed violently in recent years, the threat from innovative rivals should not be overlooked, especially for investors overweight on the big banks.
Indeed, the banks seem to be in a rough spot right now. But they beg for investor patience. If you’re able to give them a few years, I do think they can help you do rather well.
Let’s check out two very different ways to bet on a banking comeback, which may or may not be in the cards this year.
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Bank of Nova Scotia
The first way is to bet on the individual bank stocks themselves. Bank of Nova Scotia (TSX: BNS) stands out as a great value after slogging through 2023.
As it stands, BNS stock is in the midst of a multi-month rally off recent multi-year lows. I think the turning point is in the books, with more potential gains in the cards for the new year. With an 11.1 times trailing price-to-earnings multiple and a juicy 6.6% dividend yield, BNS stock stands out as a magnificent comeback play for investors bullish on the big banks.
Bank of Nova Scotia’s international business is a wild card that also helps investors gain exposure to corners of the globe (Latin America) that could see greater growth in the next decade. All considered, BNS stock is a great value pick that could gain for investors if a banking turnaround is on the horizon. Even if it’s not, you’ll get paid a great deal (6.6% yield) to wait.
BMO Equal Weight Banks Index ETF
If Exchange-Traded Funds (ETFs) are more your thing, the BMO Equal Weight Banks Index ETF (TSX: ZEB) is a great way to play the broader basket of bank stocks. The index is up over 22% from its October 2023 lows and could carry through the first quarter of 2024.
In any case, I’m a big fan of the ZEB if you want to bet on the big banks but aren’t quite sure which one to pick from. At the end of the day, a rising tide stands to lift all boats in the banking scene. With a 4.71% yield and a fair 0.28% Management Expense Ratio (MER), ZEB is an intriguing and simple way to bet on Canadian banks.
