Big Bank Bull Run? 2 Canadian Bank Stocks Overdue for a Rally

Looking to invest in the best Canadian bank stocks? Here are two options that still trade at a discount and offer juicy yields.

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Canada’s big banks are often regarded as some of the best long-term investments on the market. There’s a good reason for that view. Canadian bank stocks offer stable revenue growth, juicy dividends, and an impressive history of beating the market.

That being said, some of the big banks are overdue for a rally.

Here’s a look at two Canadian bank stocks that long-term investors should pick up while they are still down.

Option #1 – Bank of Nova Scotia

Bank of Nova Scotia (TSX:BNS) isn’t the largest or most well-known of Canada’s big banks. What Scotiabank does offer investors is a unique advantage over its peers. Instead of focusing on growth to come from the U.S. market, Scotiabank opted to focus on markets further south.

Specifically, Scotiabank focused on the Latin American markets of Mexico, Columbia, Chile and Peru. These developing markets are part of a trade bloc known as the Pacific Alliance. That alliance is charged with improving trade between its members and eliminating tariffs.

As a preferred and recognized lender across those member states, Scotiabank has benefited from strong growth in recent years.

Even better, as interest rates begin to come down, Scotiabank’s exposure to those international markets will bring about significant growth.

That wait for interest rates to come back down has been instrumental in Scotiabank trading flat over the past year. Over a longer two-year period, the bank is trading down a whopping 12%.

During that same period, Scotiabank’s dividend has swelled to an impressive 6.7%. That handily makes it the best dividend yield across Canada’s big banks.

For prospective investors with long-term timelines, buying Scotiabank this month at a discount can prove to be lucrative. This is especially true for investors with longer timelines considering Scotiabank over other Canadian bank stocks.

Option #2 – Toronto-Dominion Bank

Speaking of larger Canadian bank stocks, let’s take a moment to chat about another great buy right now: Toronto-Dominion Bank (TSX:TD). TD Bank is the second-largest of the big banks, operating both a massive domestic segment as well as a growing international presence in the U.S.

That U.S. presence is something that prospective investors should take note of. Few may realize this, but TD’s U.S. branch network is actually larger than its Canadian presence here at home.

That impressive growth comes thanks to a series of well-executed acquisitions following the Great Recession when TD stitched together a network across the east coast. Today that network extends from Maine to Florida, making TD one of the larger banks in the lucrative U.S. market.

Despite that impressive growth, in recent months the bank has come under increasing scrutiny. The crux of the issue stems from ongoing investigations by U.S. regulators. Specifically, investigators are looking into suspicious transactions that could lead to substantial fines for TD.

As of the time of writing, TD has already been slapped with a fine, but the potential for additional fines, which could measure billions, has weighed heavily on the stock.

The stock already trades down 13% year to date, making it a discounted pick right now. That dip has also pushed TD’s dividend higher, to an appetizing 5.5%.

Prospective investors looking at Canadian Bank stocks like TD should note that Canada’s big banks have historically fared well during times of volatility. If anything, the banks have emerged from crises stronger, better capitalized and ready to resume growth.

In other words, the stock will recover. Investors should look at the current weakness in TD’s share price as an opportunity. Specifically, to buy one of the best Canadian bank stocks at a hefty discount now and hold it for decades to come.

Final thoughts

In my opinion, both TD and Scotiabank are superb Canadian bank stocks that should be core holdings in any well-diversified portfolio.

Buy them, hold them, and watch them grow.

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.

Fool contributor Demetris Afxentiou has positions in Bank of Nova Scotia and Toronto-Dominion Bank. The Motley Fool recommends Bank of Nova Scotia. The Motley Fool has a disclosure policy.

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