The U.S. bank stocks have been fairing incredibly well in recent weeks and months, thanks in part to a very solid round of quarterly earnings. Indeed, it’s tough to tell if the big banks are really ready to sustain gains that could extend for another few years. Either way, it’s hard not to be encouraged by the latest banking rally, which many investors seem to think is worth banking on. As the financial sector gets a bit of the lift, questions linger as to whether the same benefits will work their way into those battered shares of Canadian banks.
Source: Getty Images
Can Canadian bank stocks follow suit?
Indeed, Canadian bank stocks have been hurting for quite some time. And while many of them have newfound momentum and a renewed sense of optimism going into the new year, investors should be ready to play the longer-term game. At the end of the day, Canadian banks aren’t guaranteed to rocket higher just because their peers south of the border have. With a unique slate of headwinds and other uncertainties surrounding the Canadian economy, there’s a realistic chance that Canada’s banks could stay stuck for longer.
Either way, one major reason to give Canada’s banks the benefit of the doubt is the incredibly low valuation metrics. Indeed, Canadian banks are not only cheap, they could be absurdly cheap, especially if we move into an environment that sees growth (and not provisions) become the theme that analysts and investors look for when earnings results come due.
In this piece, we’ll check in on a Canadian bank stock that may very well be next up to the plate as the bank stocks look to make up for lost time and perhaps power their way to brand-new all-time highs. Indeed, it has been a while since we’ve viewed the big Canadian banks as leaders in the stock market. Either way, their high dividends and return to growth could make them fantastic pick-ups in the first quarter of 2025.
Royal Bank of Canada: A great 2024 market beater to bank on in 2025
Speaking of soaring banks, Royal Bank of Canada (TSX:RY) shares are already off to the races. In fact, they’ve been surging since the lows were hit back in late 2023. Undoubtedly, it was tough to buy just about any bank stock back then. With RY stock up nearly 60% from its 2023 depths, investors wonder if there’s even more gain in store for 2025. Indeed, RY stock is already up a TSX Index-beating 31.3% over the past year.
That’s a return that will be tough to replicate. Either way, the stock has a nice dividend yield of 3.23% (it’s below-average for the Canadian banks, but it is subject to impressive growth) alongside a modest 15.61 times trailing price-to-earnings (P/E) multiple.
Sure, Royal Bank is not the cheapest Canadian bank in the basket. Arguably, it’s the priciest. However, if you want quality, you’ve got to pay for it. In the case of RY, I think the premium isn’t all too high, given the brighter road ahead and the bank’s distinct advantages over peers.
