Should You Buy Bank of Montreal (TSX:BMO) Stock Ahead of Earnings?

Bank of Montreal (TSX:BMO)(NYSE:BMO) stock may not bounce back overnight, but that does not mean investors should ignore it as a long-term option.

| More on:

Canadian bank stocks are gearing up to release the next batch of earnings in May. Last month, I’d discussed why investors should be pessimistic about banks in the near term. The COVID-19 lockdowns have ravaged the Canadian and global economy. Banks are typically a more attractive bet because of their diversification. However, in this case, that broad exposure may be to their detriment as earnings trickle in. This brings us to Bank of Montreal (TSX:BMO)(NYSE:BMO) stock.

Bank of Montreal: The story so far

Bank of Montreal stock had dropped 32% over the past three months as of close on May 4. The bank released its first-quarter 2020 results on February 25. At the time, things were running smoothly for BMO and its peers.

In Q1 2020, BMO reported adjusted net income of $1.61 billion — up 5% from the prior year. Adjusted earnings per share climbed 4% year over year to $2.41. BMO achieved a solid performance in each of its business segments. Its Canadian Personal and Commercial Banking division reported net income growth of 8% on the back of strong deposit and loan growth. Capital Markets, Wealth Management, and BMO’s U.S. segment all posted impressive growth over Q1 2019.

The picture looked bright for Bank of Montreal and other top Canadian banks in late February. However, the story has changed due to the devastating COVID-19 pandemic. BMO and other bank stocks have been ravaged, but their rebound in the near term is not a sure bet.

Banks are bracing for lockdown fallout

Bank of Montreal is set to release its second-quarter 2020 results on May 27. Last year, I’d discussed why BMO stock looked like a great buy, as it slipped into oversold territory. Should investors look to buy low right now?

Shares of BMO last had a favourable price-to-earnings ratio of 7.7 and a price-to-book value of 0.9. BMO stock fell into oversold territory in March. However, the stock last had an RSI of 44. This puts BMO stock in neutral territory as far as its technical trend goes.

As I’d discussed at the beginning of this article, investors should expect banks to be hit hard by broader headwinds. BMO has its strongest footprint in the province of Quebec, which, along with Ontario, has been hit the hardest by the COVID-19 outbreak. The province is just beginning to loosen its lockdown through a gradual re-opening. Unfortunately, the negative impacts on the overall economy and on the financial well-being of millions of Canadians may take many years to repair.

Why BMO stock is still worth a look today

Investors should not expect bank stocks to rebound as sharply as some equities in other sectors had, but this does not mean they are a bad investment. Many economists and analysts expect that the lockdowns will accelerate business trends across sectors, including banking. BMO has recently said that 80% of its workforce could switch to a blended work-home schedule going forward.

Bank of Montreal stock is still trading at the low end of its 52-week range. Like its peers, the bank has a flawless balance sheet. Moreover, the stock last paid out a quarterly dividend of $1.06 per share. This represents a strong 6.2% yield.

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 has no position in any of the stocks mentioned.

More on Bank Stocks

calculate and analyze stock
Bank Stocks

4% Dividend Yield? I Keep Buying This Dividend Stock in Bulk!

If you find the perfect dividend stock, you never have to worry about investing again. And that's what you get…

Read more »

Investor reading the newspaper
Bank Stocks

Is Canadian Imperial Bank of Commerce Stock a Good Buy?

Let's dive into whether Canadian Imperial Bank of Commerce (TSX:CM) is a top buy, sell, or hold right now.

Read more »

Man data analyze
Bank Stocks

Where Will BNS Stock Be in 3 Years?

Bank of Nova Scotia is primed for growth with a bold U.S. expansion, steady dividends, and a value focus that…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Stocks for Beginners

TFSA 101: Earn $1,596.60 per Year Tax-Free!

Investors don't have to buy some risky stock if they want tax-free high income. Instead, buy this top stock instead.

Read more »

data analyze research
Bank Stocks

TD Bank: Buy, Hold, or Sell Now?

TD is underperforming its large Canadian peers this year. Is a rebound on the way?

Read more »

data analyze research
Bank Stocks

A Dividend Bank Stock I’d Buy Over TD Stock Right Now

TD stock has long been a strong dividend and growth provider. However, recent issues could cause investors to think twice.

Read more »

An analyst uses a computer and dashboard for data business analysis and Data Management System with KPI and metrics connected to the database for technology finance, operations, sales, marketing, and artificial intelligence.
Bank Stocks

Where Will TD Stock Be in 1 Year?

TD Bank (TSX:TD) stock could heat up again as we enter a new year with a new manager and potentially…

Read more »

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 »