ALERT! 2 Top Bank Stocks Just Set Off a Buy Signal

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and Royal Bank of Canada (TSX:RY)(NYSE:RY) stocks look oversold right now.

| More on:

The S&P/TSX Composite Index has climbed to an all-time high in 2019. On some level, this may come as a surprise after a brutal conclusion to the previous year. Canadian bank stocks have led the way, posting record profits and benefiting from a solid rebound in the housing sector.

Today, I want to look at the two top banks by market cap on the TSX. Both have taken a hit after the final batch of earnings were released for Canada’s top financial institutions. Fortunately, both have also fired off an enticing buy signal. Let’s dive in.

Toronto-Dominion Bank

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is the second-largest bank in Canada, but it is always threatening for the top spot, as it has achieved impressive growth over the past decade. It is a powerhouse domestically, but its most attractive feature is its huge footprint in the United States. TD Bank is one of the top banks south of the border, and growth in the U.S. has powered its earnings in recent years.

Shares of TD Bank have dropped 4.4% over the past week as of early afternoon trading on December 10. Adjusted net income fell to $2.94 billion in the fourth quarter compared to $3.04 billion in the prior year. TD Bank continued to churn out positive gains in its U.S. Retail segment as adjusted profit rose 7% year over year to $1.19 billion. However, adjusted income in Canadian Retail only rose $4 million from the prior year, while Wholesale Banking took a hit and fell $126 million from Q4 2018.

TD Bank stock possesses a price-to-earnings ratio of 11.6 and a price-to-book value of 1.6 at the time of this writing. This is about average for its industry peers. However, the stock had a Relative Strength Index (RSI) of 26 as of early afternoon trading on December 10. This puts TD into technically oversold territory.

Royal Bank

The largest bank in the country is still Royal Bank (TSX:RY)(NYSE:RY). Its stock has dropped 3.3% over the past week. In late 2017, Royal Bank was deemed “too big to fail” by the Swiss-based Financial Stability Board. It also had a disappointing fourth quarter, but this is a stock to trust for the long haul.

Royal Bank achieved record earnings of $12.9 billion for the full year in 2019, but it slipped in the fourth quarter. This was mainly due to lower earnings in Investor & Treasury Services. A challenging market environment contributed to a year-over-year decline in earnings in its Capital Markets segment as well.

Net income in its Personal and Commercial Banking segment increased 5% from the prior year to $1.61 billion. Earnings have been driven by loan and deposit growth, and Royal Bank has emerged as a leader in mortgage lending. Canada’s housing market has bounced back nicely in 2019, and Royal Bank is well positioned to benefit from this continued rebound as we move into the next decade.

Shares of Royal Bank had an RSI of 24 at the time of this writing. This puts the stock of Canada’s top bank well into technically oversold territory. I’m looking to pull the trigger on both of these bank stocks in early December.

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 Ambrose O'Callaghan owns shares of ROYAL BANK OF CANADA and TORONTO-DOMINION BANK.

More on Bank Stocks

Confused person shrugging
Bank Stocks

Royal Bank vs. National Bank: Where Should You Park Your Investment Capital?

If we go by growth alone, it's easy to identify the top contender in the Canadian banking sector, but a…

Read more »

calculate and analyze stock
Bank Stocks

Is Canadian Imperial Bank of Commerce a Buy for its 4% Dividend Yield?

Besides its 4% annualized dividend yield, these top reasons make Canadian Imperial Bank stock really attractive for long-term investors right…

Read more »

ways to boost income
Bank Stocks

2 Undervalued Canadian Bank Stocks to Buy Now

These Big Six Banks offer growth potential and reliable dividend payments.

Read more »

Man holds Canadian dollars in differing amounts
Bank Stocks

Got $1,000? BNS Stock Can Turn it Into a Passive-Income Stream

Down more than 20% from all-time highs, Bank of Nova Scotia currently offers a tasty dividend yield of over 6%…

Read more »

dividend growth for passive income
Top TSX Stocks

1 Magnificent Canadian Stock Down 9 Percent to Buy and Hold Forever

There are some really great stocks on the market for any portfolio, but this one magnificent Canadian stock screams buy.

Read more »

Paper Canadian currency of various denominations
Bank Stocks

Is BNS Stock a Buy, Sell, or Hold for 2025?

Bank of Nova Scotia (TSX:BNS) is one of Canada's big bank stocks, but should you buy, sell or hold BNS…

Read more »

A worker uses a double monitor computer screen in an office.
Bank Stocks

Is BNS Stock a Buy for its Dividend Yield?

Bank of Nova Scotia is up nearly 30% in the past year. Are more gains on the way?

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Bank Stocks

Best Stock to Buy Right Now: TD Bank or Manulife Financial?

Manulife continues to see momentum in its business and stock price, while TD Bank stock remains down and out.

Read more »