Canadian bank stocks have long been staples in investment portfolios, providing consistent and growing income and capital gains for their shareholders. But deciding which ones are the top bank stocks to buy at any given time is never an easy task. In this article, I’ll go over the two that I think are the TSX bank stocks to buy in January.
The deciding factors will be valuation, financial strength, and long-term growth opportunities.
TD Bank
While investors certainly once had a good reason to undervalue Toronto-Dominion Bank (TSX:TD), the fact of the matter is that today, this value discrepancy appears unwarranted. Yet, Toronto-Dominion Bank’s stock valuation continues to be dragged down due to the money-laundering scandal, even though the bank is righting its wrongs. TD has made changes. It has paid its fines and continues to audit and improve its anti-money-laundering safeguards.
So, at this point, TD stock’s valuation appears unjustifiably cheap. And because of this, TD stock is now one of the top TSX bank stocks to buy in January. As you can see from the table below, TD stock is trading at significantly lower multiples than its peers.
For example, the bank group trades at a price-to-earnings (P/E) ratio of 15.4 times. TD Bank trades at 11.2 times. Also, the bank group trades at a price-to-cash flow multiple of 12.9 times. TD Bank trades at 10 times. This, despite the fact that TD’s financial performance and strength rank very favourably versus its peers.
In TD’s latest quarter, the bank reported adjusted earnings per share (EPS) of $2.18, compared to $1.72 in the same period last year. Reported earnings declined due to one-time restructuring charges. In the quarter, TD delivered strong fee and trading income, as well as volume growth in Canadian personal and commercial banking.
Toronto-Dominion Bank stock yields 3.31%.
Bank of Nova Scotia
While Bank of Nova Scotia (TSX:BNS) is well-known for its international exposure, this has come with added risk and problems. Yes, certain international markets promise higher growth rates, and this is what Scotia has pursued. But the risk began to overwhelm the bank.
This caused Bank of Nova Scotia to exit risky Latin American markets, take a massive write-down as a result, and focus more on the safer and more reliable U.S. market. So far, this move has gone well. In 2025, the bank reported adjusted EPS of $7.09, 9.6% higher than 2024, and well above expectations that were calling for EPS of $6.47. This result was driven by global banking and markets.
Today, Canada represents 48% of the bank’s earnings, and the U.S. now represents 16%. Also, while Bank of Nova Scotia has exited the most volatile international regions, it maintains a presence in higher-growth geographies such as the Caribbean and Mexico. The point here is that rising U.S. earnings plus the bank’s exit from the most volatile regions should effectively lower the risk premium for the bank. In turn, this bodes well for valuation.
Yet, the bank is still yielding a very attractive 4.28%. In my view, this, along with its new and improved risk profile, is a good reason to own the stock. I view Bank of Nova Scotia as the top TSX bank stock to buy in January.
The bottom line
The two top TSX bank stocks to buy in January are both being discounted due to issues that are no longer relevant.TD has made good progress in addressing its money-laundering issue. Yet, TD stock still trades at a big discount.
Likewise, the Bank of Nova Scotia has exited the high-risk, super-volatile regions that have caused it problems in the past. Today, it’s more focused on the U.S. and Canada, but with continued exposure to higher growth areas. The risk associated with the stock had declined markedly. Yet, it’s still the highest-yielding stock, with a dividend yield of 4.28%.
