The growing possibility that central banks in the United States and Canada will soon start easing their monetary stance has helped the stock market start the year 2024 on a solid note. This is one of the key reasons why, after surging by more than 8% in 2023, the main TSX benchmark has already extended its rally by 6.7% so far this year.
However, we should not forget that consumer inflation, which was the reason why they had to raise interest rates, is still way above central banks’ target ranges. That’s why the possibility remains open that monetary policy will continue to be restrictive for an extended period if inflation remains elevated. While the long-term stock market outlook looks bullish, these uncertainties could still lead to another round of pullback in the near term.
Nonetheless, such temporary market correction in the near term could allow long-term investors to buy their favourite stocks at a bargain. Let’s look at two top TSX bank stocks you can buy if the market slips again.
Royal Bank stock
Being the largest Canadian bank, while Royal Bank of Canada (TSX:RY) may sound like the most obvious choice among TSX bank stocks, there are several other factors that make it a great investment option in 2024. As you might already know, Royal Bank has a strong presence in both domestic and international markets, with diversified sources of revenue across various segments. But despite its consistent financial growth trends, its share prices haven’t seen much appreciation of late, making it look undervalued to buy now.
Notably, Royal Bank’s total revenue jumped by nearly 15% YoY (year over year) in its fiscal year 2023 (ended in October last year) to $56.1 billion. Even as its provisions for credit losses increased amid the challenging macroeconomic environment, its adjusted annual earnings rose nearly 2% from a year ago in fiscal 2023 to $11.38 per share. Its share prices, however, ended the calendar year 2023 with a minor 5.3% gain, underperforming the broader market as the TSX Composite rose more than 8% last year. You can expect Royal Bank’s provisions for credit losses to reduce in the years to come as less restrictive monetary policy leads to improved economic growth, which should help its stock increase in value.
RY stock currently offers a decent 4% annualized dividend yield, which may look even more attractive if its share prices fall. That’s why you can consider adding it to your portfolio if there’s another market selloff.
TD Bank stock
I also find Toronto-Dominion Bank (TSX:TD) cheap to buy for the long term right now, as it has seen around 17% value erosion since the end of 2021. As a result, TD stock now trades at $80.18 per share with a market cap of $142.1 billion, offering an attractive 5.1% annualized dividend yield.
Here’s a brief summary of how TD Bank has grown financially in the long term. In the five years between its fiscal year 2018 and 2023, the bank’s total revenue jumped 33.3%. Despite facing the pandemic-driven and other economic challenges in between, its adjusted earnings in these five years also rose 23.6%, reflecting the underlying strength of its diversified business model.
As expected improvements in the economic outlook gradually raise the demand for its financial services in the coming years, TD stock has the potential to stage a sharp recovery, making this top TSX bank stock worth considering on the dip.
