Bank of Nova Scotia (TSX:BNS) took a big hit in the first part of this year. Bargain hunters started to move in over the past few weeks and investors who missed the bounce are wondering if BNS stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) focused on dividend and total returns.
Bank of Nova Scotia stock
Bank of Nova Scotia trades near $70 per share at the time of writing. The stock was as high as $80 late last year and pulled back to $63 at one point last month.
The decline in the first three months of the year might be attributed to concerns about the $1.355 billion hit the bank took on the sale of its operations in Colombia, Costa Rica, and Panama. Tariff uncertainty between the United States and Mexico could also be at play.
The bank spent billions of dollars on acquisitions in Latin America over the past few decades. Bank of Nova Scotia still has large operations in Mexico, Peru, and Chile. Investors will need to keep an eye on how the trade negotiations pan out between Mexico and the United States. At the same time, a global recession caused by trade wars could put pressure on Peru and Chile, which depend heavily on strong commodity prices.
Bank of Nova Scotia is working through a strategy shift that will see it focus more on growing its businesses in the United States and Canada and less on Latin America. The bank spent US$2.8 billion in 2024 to buy a 14.9% stake in KeyCorp, an American regional bank. This gives Bank of Nova Scotia a good platform to boost its presence in the country.
In Canada, Bank of Nova Scotia created a new executive role last year to drive expansion in Quebec. The bank also recently announced a partnership with one of India’s largest banks, ICICI Bank, in a push to tap into wealth management opportunities with the large affluent South Asian community in Canada that is growing in size. ICICI Bank does not have wealth management operation in Canada, so the referral agreement will give high-net-worth clients of ICICI in Canada access to Bank of Nova Scotia’s wealth management products.
It will take some time for the strategy shift to deliver results, but the new executive team is making progress.
Earnings
Bank of Nova Scotia reported decent first-quarter (Q1) 2025 results. Adjusted net income came in at $2.362 billion compared to $2.212 billion in the same quarter last year. Adjusted earnings per share rose to $1.76 from $1.69. Return on equity dipped slightly to 11.8%.
Risks
Provisions for credit losses (PCL) continued to rise in fiscal Q1 2025. This is money the bank sets aside to cover potential bad loans. PCL rose to $1.162 billion in fiscal Q1 2025 compared to $1.03 billion in fiscal Q4 2024 and $962 million in fiscal Q1 2024.
A recession in Canada triggered by tariffs could put pressure on businesses and might accelerate rising unemployment. This would put households and companies with too much debt in a difficult situation and might lead to higher PCL in Canadian operations. A global economic slump would be negative for the Latin American operations.
Investors will want to watch the PCL number when the Q2 2025 results are announced.
Should you buy now?
Near-term volatility should be expected. However, contrarian investors with a buy-and-hold strategy might want to start nibbling and look to add on new weakness. News of trade deals between the United States and its neighbours would likely give BNS stock a boost when they occur. In the meantime, you collect a solid 6% dividend yield to wait for the rebound.
