Canada’s Big Banks Are Oversold: Time to Buy!

The stocks of Canada’s big banks, including Toronto-Dominion Bank (TSX:TD)(NYSE:TD) stock, are oversold. Now is the time to buy.

| More on:

Market jitters have returned in full force. The markets have been taking a beating, and the red tide has spared no one. Everything is being dragged down.

The greatest opportunity exists when stocks and industries are being unfairly dragged down. Banking is one such industry. In fact, last week there was positive catalyst for the financial industry that went largely unnoticed — a 25-basis-point rise in interest rates.

Rising rates should be a boon for Canada’s banks, as they should result in a higher net interest margin (NIM). It was therefore surprising to see Canada’s Big Five banks enter oversold territory last week.

A popular indicator used by investors and traders alike is the Relative Strength Index (RSI). An RSI below 30 signals the stock is oversold and tells investors it’s time to buy.

Based on this oscillator, the following three big banks are flashing buy signals.

Toronto-Dominion Bank (TSX:TD)(NYSE:TD)

There are a number of reasons to buy TD Bank. It has consistently been a top performer among its peers. Its one-, three-, and five-year performance tops the all of the Big Five banks. Over the past year, its outperformance has been even more pronounced. Year to date (YTD), its stock price has dipped 1.89% as compared to the group average of 7.2%.

Last week, its RSI dipped to a year-low of 21.85. TD Bank is trading below its historical price-to-earnings (P/E) average and has a P/E to growth (PEG) of 0.91. A PEG under one signifies that the company’s share price is not keeping up with its expected growth rate. Thus, it’s considered undervalued.

Royal Bank of Canada (TSX:RY)(NYSE:RY)

With an RSI of 20.9, Royal Bank was the most oversold financial and the fourth most oversold company on the TSX Index last week. The bank finds itself in an unfamiliar position among the worst performers in the industry.

YTD, its stock price has lost 8.67% of its value, second only to Bank of Nova Scotia. For the first time since 2016, the company is trading below its historical P/E ratio. As I’ve written about a few times before, this is a clear buy signal for Canada’s big banks.

Bank of Montreal (TSX:BMO)(NYSE:BMO)

BMO rounds out the trio of oversold banks. Its RSI indicator of 22.2 also makes it a screaming buy. BMO’s performance over the past one, three, and five years is second only to TD Bank. YTD, it has held up better than most, losing only 2.97% of its value.

Unlike the other two, BMO is still trading in line with its historical P/E ratio. Of note, it’s the only one of Canada’s Big Five that hasn’t dipped below its historical averages. Likewise, it has a PEG of 1.21, implying it is fairly valued based on expected growth rates.

The technical RSI indicator on all three of these reliable dividend-growth companies signal a buy. Canada’s banks have been some of the most reliable investment options in Canadian history. Don’t miss out on your opportunity to pick them up on the cheap.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Mat Litalien is long Toronto-Dominion Bank and Bank of Montreal.   

More on Dividend Stocks

Canadian Dollars bills
Dividend Stocks

3 Monthly-Paying Dividend Stocks to Boost Your Passive Income

Given their healthy cash flows and high yields, these three monthly-paying dividend stocks could boost your passive income.

Read more »

Make a choice, path to success, sign
Dividend Stocks

The TFSA Blueprint to Generate $3,695.48 in Yearly Passive Income

The blueprint to generate yearly passive income in a TFSA is to maximize the contribution limits.

Read more »

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

TFSA: 2 Canadian Stocks to Buy and Hold Forever

Here are 2 TFSA-worthy Canadian stocks. Which one is a good buy for your TFSA today?

Read more »

calculate and analyze stock
Dividend Stocks

This 5.5% Dividend Stock Pays Cash Every Single Month!

This REIT may offer monthly dividends, but don't forget about the potential returns in the growth industry its involved with.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

How to Use Your TFSA to Earn up to $6,000 Per Year in Tax-Free Passive Income

A high return doesn't mean you have to make a high investment -- or a risky one -- especially with…

Read more »

path road success business
Dividend Stocks

2 High-Yield Dividend Stocks to Buy Hand Over Fist and 1 to Avoid

High yields are great and all, but only if returns come with them. And while two of these might, another…

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 7% Dividend Stock Pays Cash Every Month

A high dividend yield isn't everything. But when it pays out each month and offers this stability, it's worth considering!

Read more »