Indeed, it’s quite a pleasant surprise to witness the Big Six Canadian banks blasting off as quickly as they have in this past year. The gains are probably far from over, as the earnings growth looks to kick things up a notch after a few years of loan losses and other headwinds that have weighed heavily on the cohort.
Add Bank of Canada rate cuts into the mix, and it seems like the banks are getting ready for a rising tide of loan growth that we may not have seen in a while. Either way, don’t turn against the banks just because of the hot road that lies behind them. As always, it pays to focus on where the group is going next rather than what they’ve been up to in the recent past.
In a prior piece, I encouraged investors not to let the lower yields on bank shares distract them from the real growth opportunity at hand, especially as some of the biggest financial institutions embrace the cost savings potential of AI-driven automation and continued digitization of their platforms.
With another strong round of bank seasons in the books, investors’ sights are set on the new year. And in this piece, we’ll have a closer look at one of the best bank stocks to bank on the bull market as we head into yet another round of quarterly earnings results. Sure, expectations have risen, but I think there’s room to impress, especially as some of the top-performing big banks look to get serious about boosting their returns on equity while increasing share repurchase plans.
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Bank of Montreal
Bank of Montreal (TSX: BMO) stock has gained just shy of 50% in a single year. For a big bank, that’s a jaw-dropping run. And while shares could consolidate after the latest upside spike, I find little reason to rush for the exits, given the momentum that’s powering not just the share price but the fundamentals, which look as powerful as ever. The bank’s return on equity numbers (ROE) are already impressive, but management is looking to keep raising the bar further (ROE target set at 15%).
Given how well things have been going for the bank and that management is a proven performer, I’d not be surprised if management achieves a figure that overshoots the target. With the means to grow south of the border while maintaining discipline on costs, I think BMO stock has a lot of earnings growth drivers that make it difficult to be a profit-taker at more than $180 per share.
At 13.6 times forward price-to-earnings (P/E), BMO is one of those rare names to buy higher and sell higher. In 2026, look for BMO to outstride many of its peers as it looks to hit its ambitious targets in what could be another comeback year for the financials.
The yield, currently just north of 3.5%, may be on the lower end of the historical range. However, with the potential for more generous dividend increases moving forward, I’d much rather opt for BMO stock and its modest payout than a less “growthy” financial with a yield north of 5%.
