Toronto-Dominion Bank (TSX:TD) is a stock I once fell out of love with, only to fall in love with it all over again. When I heard that the company was facing a money-laundering investigation in the U.S., I sold the majority of my shares in disgust, remembering the $5 billion or so in fines that Wells Fargo took in the 2010s for similar reasons.
Later, I read that the so-called money-laundering investigation really involved just one teller in New Jersey and that the potential fine amounts numbered in the millions, not billions. Around the same time, I noticed that the stock had fallen to $78, so I began greedily buying back the shares I had sold. I’m glad I did because they began rising soon afterward.
Money-laundering investigation: Not such a big deal
When I first heard about TD being under investigation for money laundering, I was shocked. I immediately thought of all the fines Wells Fargo took in the 2010s for forcing customers into accounts they didn’t want. They totalled more than $3.7 billion!
The accusations TD faced looked different from those that Wells Fargo actually paid out for. Specifically, they involved claims the company had poor controls that enabled New Jersey employee Oscar Nunez-Flores to launder a few million for drug cartels.
When I first heard about the money-laundering investigation, I assumed that the allegations were more serious than these. Specifically, I figured that because this was a federal investigation, the company was involved in a massive money-laundering conspiracy involving billions of dollars in cartel money spread all across the United States. Later, when I read that TD was really just accused of letting one employee go rogue, I calmed down a bit. My newly calm demeanour was strengthened by estimates that the fines related to the investigation would only amount to $500 million to $1 billion. Seeing that the stock had gone all the way down to $78, I started buying back the shares I had sold.
Today, I plan to continue buying as long as the price stays below $82 — the level I sold at.
Valuation getting cheap
Because of the money laundering investigation and some earnings damage caused by non-recurring costs, TD Bank stock has gotten quite cheap. It has fallen in price to the point where it is trading at a mere 10.17 times earnings. Most North American bank stocks trade closer to 12 times earnings these days. Bank of America, Royal Bank, and JPMorgan Chase are all in that club. TD has about the same average top-line growth as those companies do, but with some temporary earnings issues due to various restructuring costs. Those costs will eventually stop showing up in TD’s earnings releases, which will cause earnings to spike.
Foolish takeaway
My selling of TD Bank shares was an overreaction to news that was only moderately bad. Fortunately, the stock declined in price after I sold, so I got the opportunity to start buying my shares back cheaper. I hope that TD stays below $82 for the next few months so I can rebuild my entire position at a lower price.
