Canada’s Big Six banks are fresh off some pretty applause-worthy quarterly earnings results. Arguably, they were running up against a high bar (high expectations from analysts) going into the numbers, but they still managed to impress and garner continued momentum, as investors sought to capitalize on one of the hottest new, large-cap trades in the country. Indeed, betting against the big Canadian banks, even after a few sluggish years, has proven unwise.
With substantial dividends, newfound enthusiasm, and the potential for momentum to carry into 2026 and beyond, I wouldn’t be against buying the top Big Six banks at close to all-time highs. I’m a fan of each of the six in this environment and would even go for an equal-weighted Canadian bank ETF to keep things simple. If you’re more of a stock picker, though, I’ll go ahead and make a call on which of the Big Six I think will perform best for the next 18 months.
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TD Bank: Shares recovered quickly from the post-earnings dip
After an initial disappointing reaction to the latest quarterly figures of TD Bank (TSX: TD), I’m inclined to name it as my top pick in the Canadian banking scene. Of course, the numbers were actually quite good, but investors seemed quite put off by the anti-money laundering (AML) expenses.
Indeed, the whole money-laundering fiasco from last year ought to be forgiven. And while TD Bank’s AML investments may seem like a real drag, I do think that the bank will have one of the best AML programs in the industry.
It’s a significant overhaul, to say the least, and one that I think could exceed what regulators expect from it. Such strength, I think, bodes well for TD Bank’s reputation as it looks to rebuild it under new leadership which, I believe, is off to a strong start.
A great fit for long-term investors
While investors seemed to have moved on from the quarterly concern, with TD shares now back above $104 per share, I still think there’s deep value to be had by investors looking for upside in the banks. Though TD shares are not too far off from all-time highs, I’d like to highlight the depressed 8.9 times trailing price-to-earnings (P/E) multiple.
That’s a hefty discount that I think could turn into a premium in three years down the road, when AML costs are long forgotten about.
Who knows? TD Bank may be closer to returning its growth south of the border in a few years. In any case, the $178 billion banking juggernaut is a great fit for long-term TFSA investors who are looking for a semi-permanent name to hold in the core of their portfolios. With a nice 4.1% dividend yield and one of the lowest valuations of the Big Six group, I would not hesitate to recommend the name above its peers in the Big Six.
Breakout on the horizon?
The big question for investors is whether TD shares can break out to new heights by the end of the year, like some of its leading peers. TD shares are just 3% or so away from such heights, and I do think a breakout is inevitable at this point, perhaps well before the next earnings result is released.
Simply put, the shares are too cheap, and a lot of multiples expansion can happen in the coming weeks and months.
TD stock is back. And it looks better than ever.
