Shares of TD Bank (TSX:TD) are finally enjoying a comeback year after spending the last three years or so stuck in limbo. Indeed, it’s hard to believe that the once-ailing bank stock has now risen by nearly 30% over the past six months.
And while another 30% gain in the second half seems less likely, I do think there are a multitude of reasons to stick by the beloved bank stock as its new CEO continues to turn the tide to make TD Bank a “premier” name of the Big Six banking basket again. Time will tell how the red-hot run ends, but as the $100 per-share level is put to the test, I think it’s just a matter of time before TD Bank breaks out, joining the likes of many of its top-performing peers once again.
TD stock’s rally could have legs as the second half kicks in.
Despite the blistering six-month surge, TD Bank stock still looks deeply undervalued relative to a number of its financial peers. At the time of this writing, TD shares trade at a low 10.1 times trailing price-to-earnings (P/E). And the dividend yield, while now less swollen, still looks attractive at just north of 4.3%. So, has new CEO Raymond Chun already regained the trust of the public? Or is there still a lot of work to be done to get back on the high track?
That’s the big question for the second half, and while investors clearly seem enthused by TD Bank’s direction under Chun’s leadership, I do think the second half could see greater clarity on the bank’s longer-term growth trajectory. Indeed, growth in the U.S. is likely to stay muted for some time. But don’t count on TD to simply sit back and wait for regulatory hurdles and remaining legal unknowns to subside. The bank has a lot of capital to put to work going into the second half. Investing heavily in domestic expansion and the continued digital transformation, I believe, could help further separate TD Bank from the pack.
TD Bank’s tech could set it apart.
Indeed, fintech firms and AI-driven companies seeking to break into the payments space have been growing rivals to the big, established banks. And while the fintech boom still has legs, I think that continued investments by TD (as well as its banking peers) could tilt the tables back in the favour of the massive financial institutions.
At the end of the day, the banks have more than enough capital and talent to embrace the rise of AI to keep up with the fintechs. Indeed, many fintechs, I think, have a lack of a moat. And though they could undercut the big banks on fees and other areas, I don’t see the durable competitive advantages of the tech-savvy big banks being eroded anytime soon. If anything, they could begin to claw back market share in a big way as the traditional banks enter the AI era.
Enter TD Prism
TD Bank’s AI Prism is an intriguing, industry-leading model that the big bank quietly unveiled a few weeks ago. Indeed, it’s quite profound that a big bank is making such a big dive into the world of AI models. I’d keep close watch on Prism as TD looks to use AI in a way to turn itself into a personal banking juggernaut primed for growth. With a trove of data and the means to beckon younger, tech-savvier customers, I’d not dare stand in the way of TD stock’s big comeback rally.
This first-half winner might have more performance up its sleeves in the second half!
