For TFSA (Tax-Free Savings Account) investors looking to make the most out of their latest contribution, the Big Six Canadian banking stocks are definitely worth banking on now that they’re gaining ground in a hurry. Undoubtedly, it’s hard to tell how the banks will fare after helping power the TSX Index to a gain that’s currently more attractive than that of the S&P 500, at least year to date.
Either way, many pundits still think the big banks have gas left in the tank. And while I’d suggest owning the banks for the long haul rather than trading them now that they’ve got some solid quarters in the books, I wouldn’t be against dollar-cost averaging, given the TSX Index is coming in quite hot as we enter the final month of the third quarter.
In any case, the big banks are firing on all cylinders again. And with the perfect mix of capital appreciation, high yields, and dividend growth potential, I find them to be suitable candidates for any Canadian investor looking to put unused TFSA cash to work during this back-to-school season.
Of course, the stock market started the month of September with a bit of turbulence, at least in the U.S. market. Meanwhile, the TSX Index managed to finish the first trading day slightly in the green. I think this is the year that Canadian stocks really shine, thanks in part to the strength in the big banks. Of the six, here are two cheap names I view as the best poised for future growth.
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TD Bank
First, we have TD Bank (TSX: TD), which recently slipped following its decent quarterly earnings reveal. Indeed, profits were in a good spot, but anti-money-laundering (AML) charges were a concern for some. I thought the post-earnings dip was overdone, and the ensuing trading session seemed to confirm such, as shares of TD gained just north of 2% following a single-day dip in the ballpark of 5% or so.
At 8.8 times trailing price-to-earnings (P/E), with a 4.1% dividend yield, the stock looks cheap, even though the AML woes aren’t 100% behind the stock quite yet. Undoubtedly, restrictions on U.S. retail growth will act as an overhang of sorts. But let’s not be distracted from TD’s impressive revenue growth, which came in a tad ahead of expectations. TD is back on track. And this may very well be the last of the AML-related pain points, as the bank looks to make the most of this bankable rally.
National Bank of Canada
National Bank of Canada (TSX: NA) is another terrific bank that fell under pressure last week. Now down close to 5% (a half correction, if you will), investors may have an opportunity to snatch up shares of a fast-moving number-six bank while it cools off after its impressive and lengthy bull run. Though seemingly expensive at 14.3 times trailing P/E, especially compared to the likes of a TD, I am impressed with National Bank’s expansion potential.
The 3.3% yield also looks modest, but if you’re looking for a well-run bank with a long growth runway, perhaps the slight premium on the name is worth paying. I certainly think it is, especially when you consider the near-100% gain posted in the past five years! That’s an extraordinary performance for a bank. Over the next five years, I expect National Bank could be a top-three performer.
