TD Stock: Why I Reversed Course

Toronto-Dominion Bank (TSX:TD) is one stock I reversed course on in a big way.

| More on:
edit U-turn

Image source: Getty Images

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Fool contributor Andrew Button has positions in Bank of America and Toronto-Dominion Bank. The Motley Fool recommends Bank of America and JPMorgan Chase. The Motley Fool has a disclosure policy.

More on Bank Stocks

Bank sign on traditional europe building facade
Stocks for Beginners

1 Magnificent TSX Dividend Stock Down 22% to Buy and Hold Forever

This dividend stock may be down 22% from all-time highs, but is up 17% in the last year alone. And…

Read more »

edit Woman calculating figures next to a laptop
Bank Stocks

Better Bank Buy: Scotiabank Stock or CIBC Stock?

These two bank stocks have been showing some improvements, but which is the better buy for investors who are looking…

Read more »

Coworkers standing near a wall
Bank Stocks

The Average Canadian Stock Investor Owns This 1 Stock: Do You?

Here's why Royal Bank of Canada (TSX:RY) makes it into most investor portfolios in Canada, and why global investors should…

Read more »

Man considering whether to sell or buy
Bank Stocks

Is TD Stock a Buy, Sell, or Hold?

TD stock just bounced. Are more gains on the way?

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

3 Ways Canadian Investors Can Save Thousands in 2024

If you've done the budgeting and are still coming out with less money than you'd like, consider these three ways…

Read more »

woman data analyze
Bank Stocks

Best Stock to Buy Now: Is TD Bank a Buy?

TD Bank is a top candidate for conservative investors looking for reliable returns in the long run.

Read more »

grow money, wealth build
Bank Stocks

TD Bank Stock Got Upgraded, and It’s a Good Time to Load Up

TD Bank (TSX:TD) stock is getting too cheap, even for analysts at the competing banks!

Read more »

data analyze research
Bank Stocks

3 Top Reasons to Buy TD Bank Stock on the Dip Today

After the recent dip, these three top reasons make TD Bank stock look even more attractive to buy today and…

Read more »