There’s no shortage of bargains on the TSX Index, especially when it comes to some of the big-league financials. In the Canadian financial scene, the big bank (the so-called Big Six) behemoths have been under some serious pressure in recent years.
While some have begun to show signs that they can still deliver on the capital gains front, many of them are still stuck in the gutter. With interest rates on the decline (the Bank of Canada recently cut, likely months ahead of the U.S. Federal Reserve), inflation that’s now (mostly) under control, and macro pressures that stand to fade away into 2025, I’d argue that the big banks are opportunitistic buys right here.
Sure, you could reach for the recent banking leader. However, I’d argue there’s much more upside potential (and yield) to be had with some of the more battered banks, some of which are dealing with severe idiosyncratic issues.
Canadian banks on sale?
Indeed, TD Bank (TSX: TD) stands out as a top bank to consider buying on the dip. It’s been historically viewed as a premium bank. But nowadays, it’s trading at what I believe to be a lofty discount to intrinsic value, primarily due to the money-laundering crisis and the financial and non-financial penalties that have still yet to be announced. Of course, the bearish critics think that penalties could be as high as $4 billion. That’s a pretty penny, but not at all detrimental to one of Canada’s largest and most trusted financial institutions.
Though I like TD, I can’t say you’ll get much certainty when it comes to the growth narrative over the next three years. Could TD Bank’s hands be tied? I have no idea. What I do know is that the capital ratio is healthy, and the bank has more than what it takes to make it through this disaster. Further, a new CEO and a change of risk management may be enough to win shareholders back.
Banking on BMO stock after its decline
Though TD stock looks dirt-cheap right now, I think Bank of Montreal (TSX: BMO) is a better bank for your buck this June. You’re getting more certainty with the long-term growth story in addition to a modest price of admission after the stock got crushed following a weak round of quarterly earnings results.
Indeed, BMO stock dropped more than 8% after the quarter and is now down around 11.5% from its 52-week highs close to $134 per share. Indeed, the chart doesn’t look pretty, but the valuation, I believe, does.
The stock goes for 14.1 times trailing price-to-earnings (P/E) to go with a 5.22% dividend yield. That’s a heavy yield for BMO standards. As BMO moves past a forgettable quarter, I do think the stage could be set for better performance in the second half of 2024. For the second quarter, BMO has put more cash aside to brace for some bad loans.
Indeed, the macro climate has been tough, but the good news is the headwinds haven’t hurt the firm’s profound financial strength. CEO Darryl White praised his firm’s balance sheet, citing the common equity tier 1 (CET1) ratio (a bank metric to gauge financial health) north of 13%. That’s not just a good CET1 ratio; it’s a fantastic one.
