Google (NASDAQ: GOOG) is one of my core portfolio holdings; the largest, in fact, by weighting. I’ve been holding the stock since the 2022 tech bear market, and I plan on staying put. Although the stock is fairly richly valued now, it is not so expensive that it is an obvious sell. I sold my Apple shares when that company was at 30 times earnings and not growing. Google is at 26 times earnings and still growing at a rapid pace – I think I’ll stay put.
The latest big news from Google was the company’s fresh new dividend. At $0.20 per share, it yields just 0.12%. Nevertheless, the mere fact of a dividend was greeted with applause from long-time shareholders when it was announced.
Still, I don’t see Google as the most attractive place to deploy capital into today. It is the highest-quality business I know of, but it is expensive enough that I don’t really feel like running out and buying more. There is a stock I know of that’s cheap enough to be worth investing fresh money in today. In this article, I will explore that stock and explain why I’ve been actively buying shares this month.
TD Bank
For investors with a high-risk tolerance and long time horizons, the Toronto-Dominion Bank (TSX: TD) may be a better place to deploy fresh capital into today than Google. This stock isn’t for everyone – it has an active U.S. Department of Justice Investigation into its money laundering controls, and has already booked $450 million in fines. But it is fairly cheap, and pays a nice 5.3% dividend that is well covered by earnings. Its business is not as high quality as Google’s, but factoring valuation into the picture, it might be a better overall buy.
Dirt cheap
Because of the incredibly highly publicized money laundering investigation it is under, TD has gotten dirt cheap. At today’s prices, it trades at 10 times earnings and 1.3 times book value. That’s much cheaper than the average S&P 500 stock, and even cheaper than the average bank stock. Large North American banks are trading at around 12.5 times earnings today on average. Previously, they were valued similarly to TD, but they started rallying when first-quarter earnings showed major growth in their investment banking (IB) segments. Because it is being investigated by the DoJ, and will likely pay $2 billion in fines, TD has gotten much cheaper than the average bank. However, if the $2 billion in fines are all booked in one year, that’s only a year’s earnings that’s reduced by 20%. In the context of TD’s overall financial picture, it’s not all that much.
Solid revenue growth
Another thing worth noting about TD is that, although the fines are likely to cause negative earnings growth in the coming 12 months, the company’s revenue growth is still strong. It recently bought the U.S. investment bank Cowen, and IB has been hot lately, so that should make a positive contribution to revenue in the year ahead. Lastly, the concern that TD can’t grow in the U.S. anymore because of the investigation is overblown. TD probably isn’t getting approved to buy U.S. retail banks anytime soon, but it got its Cowen deal approved swiftly, while the DoJ investigation was ongoing. So, it can still expand in the U.S. through non-retail banking acquisitions. Finally, TD’s 5.3%-yielding dividend can still be paid even with a $2 billion fine taken out of earnings. On the whole, it’s an intriguing buy for risk-tolerant investors.
