The big Canadian bank stocks have really helped pull the TSX Index higher in recent years. And as AI stocks, most notably Nvidia (NASDAQ: NVDA), begin to retreat rapidly, questions linger as to whether the S&P 500 can regain enough momentum to top the Canadian indices. Either way, the big banks seem to be the place to be, not just for steady earnings-driven momentum, but for diversification away from tech. Indeed, even Canadian investors might be unknowingly overweight in the AI trade.
If you own a piece of the S&P 500 (and, yes, many Canadians do by way of a TSX-traded S&P 500 ETF), you’re quite invested in the AI trade, which might continue to correct in the coming weeks and months. Any way you look at it, strength beyond the AI scene or even the tech sector seems wise as the market waters look to stay choppier for a while longer.
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Scotiabank: Still a buy at near the high?
With Bank of Nova Scotia (TSX: BNS) or Scotiabank just a good day or two away from hitting all-time highs just shy of $135 per share, questions linger as to whether the relative resilience of the former banking underdog is sustainable as the S&P begins to show just a bit more fragility as the AI trade faces its biggest test yet. Indeed, the potential bursting of an AI bubble could ripple through other sectors and even rock the Canadian markets.
In my view, though, I think the TSX Index, by its nature, is quite well-insulated from an AI bust, whether caused by the fall of Nvidia and the magnifying glass set on its CEO and founder, Jensen Huang, after admitting to an affair with an alleged Chinese spy or something else.
At the end of the day, tech isn’t a big part of the TSX Index. Energy, financials and materials plays are. As it turns out, that’s a corner of the market that can keep standing tall as tech faces its most critical moment since the AI boom began.
Scotia’s AI potential could surprise in a big-time way
In a way, Scotiabank shares could be where the puck is headed as investors look for strong fundamentals and growth outside of the tech scene. And, as I’ve noted in prior pieces, the big banks also stand to benefit from incorporating AI technologies to boost growth while trimming away at costs.
Whether we’re talking about innovations such as Scotia Intelligence launched earlier this year or the incorporation of agents to automate things behind the scenes, it’s clear that Scotiabank recognizes the real opportunities to be had in AI.
In my view, the real AI gains lie in the hands of effective users of the technology, rather than the red-hot AI labs that are spending heavily to stay at the frontier. Using the technology and paying for it looks to be the way to score ROIs, rather than spending first and hoping to sell models at a price the market is willing to accept. In my view, Scotiabank is a stellar monetizer of the technology and, at the end of the day, that’s where the real value of AI lies.
What’s not to love? A decent yield, robust tailwinds and a dirt-cheap multiple
Even as BNS shares eclipse new highs, the dividend yield still stands quite tall at around 3.5%. And it’s definitely worth considering for a retirement portfolio. Of course, BNS stock doesn’t yield 6% anymore, but it’s still a rich yield compared to its Big Six peers in the space. As Scotiabank continues to demonstrate it’s worthy of a more in-line multiple with its more premium peers, my guess is that BNS could have the most room to rise among the Big Six.
The bank is inching away from the riskier international part of the business and could post big wins as AI tech (a structural tailwind) helps enhance the fundamentals. At 13.8 times forward price-to-earnings (P/E), BNS stock looks like the best bank for your buck, especially for the income-oriented!
