Best Stock to Buy Right Now: TD Bank or Manulife Financial?

Manulife continues to see momentum in its business and stock price, while TD Bank stock remains down and out.

Karen Thomas, MSc, CFA ❯

Karen is a stock market enthusiast focused on uncovering those stocks that she believes the market has mispriced. She does this through fundamental and quantitative analysis of companies and their industries, as well as a study of future opportunities and trends. She holds a Masters degree in Finance, the CFA designation, and has over 20 years of experience in the investment management industry. Having worked at a major pension fund, as well as two leading mutual fund firms as an analyst and portfolio manager, she has solid investing expertise which she aims to share with her readers.

Published November 7, 2024 9:00 pm EST

Figuring out the best stock to buy right now is never an easy task. But it’s one that’s well worth the effort, as it can help us maximize our investment returns. Let’s take a look at two stocks in one of the most lucrative industries, the financial industry. Which one is the best stock to buy now?

Manulife

Over the last few years, Manulife Financial Corp (TSX:MFC) has been enjoying solid momentum. This has been reflected in Manulife’s financial results as well as its stock price performance. In fact, the stock has rallied an impressive 56% year-to-date. Can the insurer keep this up?

Well, the story of Manulife has been an interesting one. Financial difficulties in the financial crisis of 2008/09 took Manulife down from over $40 to a low of $10. Since then, the stock was languishing, hovering at around $20 for many years.

Until this year, when Manulife’s stock broke out, reaching new highs today. This is happening as returns are higher, growth is higher, and expectations have soared. Manulife is a new and improved company, with an unmatched geographic diversification, business mix, and scale. The wealth business has been booming, and Asia has been seeing rapid growth.

Manulife reported its third quarter today. It was another beat and another quarter of impressive growth and returns. In fact, it beat earnings expectations handily, with EPS coming in at $1.00, compared to $0.92 in the same period last year and compared to expectations of $0.94. Furthermore, return on equity came in at 16.6% (up from 11% in 2017), with the company’s 18% goal remaining in reach.

In summary, Manulife’s profitability, scale, and returns have all accelerated over the last years. With this, investors have taken notice, and what was once a great value play is now reflecting a lot of the good news in its valuation. In fact, it trades at 19 times earnings versus its peer group, which trades at 14 times.

TD Bank stock

Contrary to Manulife, Toronto-Dominion Bank (TSX:TD) has been dealing with difficulties over the last few years. For example, a consumer and economy at risk have resulted in a heightened risk for credit losses. This was already putting pressure on sentiment and expectations for TD Bank and TD Bank stock.

Then we had scandal. On October 10^th, U.S. regulators ordered TD Bank to pay a total of $3.1 billion in fines after the bank pled guilty in the money-laundering case that was brought against it. The bank’s reputation has been hit, and certain restrictions will impact future business.

But does TD Bank’s stock price reflect all of this? The stock is 27% lower than its 2022 highs. Clearly, investors are still worried – and rightly so. But interestingly, TD Bank stock continues to trade at a premium to its peer group – by a significant margin. So while I continue to monitor the stock, I don’t think that the valuation reflects the new reality for TD Bank. Growth in the US will be impacted by this scandal, as will returns and by extension, shareholder value creation.

Now that this case is history, it can and will fade into the background. In time, TD Bank stock will be a good buy, but today, I don’t believe its valuation is attractive.

The bottom line

Manulife continues to have a lot of things working in its favour – the aging population, lower inflation, and lower interest rates. With a dividend yield of 3.2% and continued strong momentum, Manulife Financial is, in my view, the best stock to buy right now. TD Bank stock, on the other hand, does not adequately reflect its risks, so I would watch and wait for a better entry point sometime in the future.