Some of the best-run Canadian financial stocks are starting to gain momentum. Undoubtedly, the financial sector still seems rather lukewarm. However, some of the top performers may be worth checking into as they look to add to their runs in the second half of the year and into 2025.
There are still a great deal of challenges to get through before the Canadian economy is in the clear. Inflation, while much tamer than it was, is still a bit of an issue, especially after the latest reading.
Undoubtedly, sub-3% inflation seems “good enough” to warrant another interest rate cut. And though the Bank of Canada may have already acted, my guess is that the second cut will require a strict set of circumstances.
Indeed, nobody wants inflation to have a chance to resurface, even by the slightest margin. As the U.S. Federal Reserve looks to act in the second half, perhaps the Bank of Canada can feel better following the lead of America’s central bank before making its next decision. Indeed, I’d be surprised if more than one rate cut was in the cards for Canada in the second half.
Perhaps the latest rate cut came just a tad prematurely. Either way, rates seem to be in for a very slow and steady descent from here. That could be good news for financial players such as Manulife Financial (TSX:MFC) and Royal Bank of Canada (TSX:RY). After solid years, which name is the better value for long-term investors? Let’s find out.
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Manulife Financial
Manulife stock was up more than 24% in the first half, adding to the impressive run that began in the final quarter of last year. Indeed, the stock has quite a bit of steam behind it. And with Manulife’s profit margin target being raised at its latest Investor Day, I do think the good times could continue well into 2025, assuming management can deliver on their new goals.
The stock still boasts a handsome 4.4% dividend yield, which is quite generous for a firm with such an impressive growth profile. Indeed, there’s still room to run as Asia looks to overcome recent macro headwinds. In any case, MFC stock isn’t all too expensive at less than 10 times forward price-to-earnings (P/E). MFC stock looks like a deep-value play, a high-yield dividend payer, and a momentum stock all rolled into one.
Royal Bank of Canada
Royal Bank of Canada stock was faster than many of its peers in recovering from the great bear market of 2022 and 2023. Indeed, RY stock is fresh off all-time highs, even as some of its rivals continue to post sub-par quarters. Though the Canadian economy isn’t in an ideal spot, Royal Bank seems to have a management team that knows how to move forward in spite of any headwinds.
With a solid domestic banking business and much-improved capital markets, RY stock may be worth the relative premium to the Big Six banks. At writing, shares go for a 13.5 times trailing P/E to go with a 3.9% dividend yield. The name is not a severely undervalued bargain by any means, but it is a decent value for a market leader. Between RY stock and MFC stock, though, I’d go with the latter as it’s a timelier play with the larger yield.
