It’s about time that Canadian investors gave the big bank stocks some love, especially now that the TSX Index is ready to make higher highs. With the Bank of Canada a friend of investors once again, questions linger as to how the big bank stocks will proceed.
Though not all banks have what it takes to finish the year with a bang, I view some of the underperformers as worth additions to a portfolio seeking above-average results. Indeed, picking the dogs of the basket is seldom a market-beating strategy. However, Canadian banks are built differently.
They can persevere through good times and bad. And while a recession can never be 100% ruled out, I believe that the risk/reward scenario on some of the lagging names hasn’t been this good in a number of years. Additionally, with dividend yields still on the swollen side, I think there’s never been a better time for retirees or income investors to give the top bank stocks a bit of a second look.
So, without further ado, consider my top two favourite Canadian bank stocks to bank on in the final quarter of 2024 and the first quarter of 2025.
TD Bank
I was right to pound the table on shares of TD Bank (TSX:TD) just a few weeks ago before they suddenly ricocheted off their multi-year lows. And I’m not quite ready to turn any less bullish on the stock—not while it’s still well behind the leaders in the banking pack.
Arguably, the main reason for preferring the other five Canadian banks has been TD’s money-laundering woes. They’ve been a huge overhang, but as time goes on, I think investors will begin to forget and learn to forgive as they focus on the path ahead rather than the rough road behind them.
Indeed, the road ahead looks very bright for TD as it embarks on a journey with a new captain aboard the ship. In a prior piece, I praised TD for naming Raymond Chun, 55, as Bharat Masrani’s successor. He’s a fantastic choice and one that I believe could help TD outpace the rest of the peer group over the next 18 months. As other such changes are made to management while TD positions itself for the next chapter, I wouldn’t sleep on the stock.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) is another bank that’s been inching higher in recent sessions. It’s been a straight lineup over the past month, with BNS shares surging more than 13% over the timespan. Though the dividend yield has compressed to 5.89%, I’d argue that the combination of share momentum and the still-elevated yield make the stock a timely option for those seeking appreciation and passive income.
The stock is also dirt cheap at 12.85 times trailing price-to-earnings (P/E). And with the Bank of Nova Scotia setting its sights on the U.S. market for growth, I’d argue that the internationally diversified bank is about to become that much growthier. In any case, the stock’s looking up and is worth a buy as it tests $75 per share in the coming weeks.
