TD Bank Stock (TSX:TD): Time to Buy This Top Canadian Bank Stock?

TD Bank stock is a top Canadian bank stock, but even it will fall into hard times in 2021 as the second wave of the pandemic hits hard.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) reported its fiscal 2020 earnings last week. Almost nine months into the pandemic, the TD Bank has shown that it has great resiliency. Actually, the story is the same for most Canadian banks.

For example, Royal Bank has also shown its resiliency in Q4. It’s a reflection of banking regulations. It’s also a reflection of prudent risk management. Finally, it shows that the Canadian banks are extremely well capitalized.

So the market has responded to this resiliency by looking past the pandemic. Investors seem to be focused on what comes after the vaccine is distributed and administered. Bank stocks, including TD Bank stock, have been riding high again. For example, TD Bank stock is up 20% since November first.

All of this positive news might have you thinking about your next step. Is it time to buy TD Bank stock now? Will this top Canadian bank stock be a good investment in 2021?

TD Bank stock: 2021 will bring new challenges

The trend in TD Bank’s fourth quarter earnings is definitely up. Here I’ll go through some numbers really quickly to give you a sense. Earnings rose more than 80%. Provisions for credit losses fell 58%. So the magnitude of sequential improvement is huge.

I personally own the stock. I’m happy with this earnings result. And it looks like most investors are as well. I mean, TD Bank’s stock price today is only 7% below pre-pandemic 2020 highs. The price graph below illustrates this.

Can the troubles of this year really be shaken off so easily?

2021 may bring TD back to reality

As a top Canadian bank, TD Bank is an example of excellence. The macro headwinds that 2020 has brought have been nothing short of disastrous. But with the help of government stimulus programs, TD Bank made it through. However, with the second wave in full swing, 2021 will present continued challenges.

Compared to 2019, TD Bank’s earnings fell dramatically in 2020. But sequentially, we can see a strong recovery happening. Most importantly, TD is seeing good consumer activity. Also, delinquency rates are muted. Lastly, the bank’s liquidity is good. All of this information more than explains the strength in TD Bank’s stock price.

But what comes after this in 2021? Well, Royal Bank of Canada (TSX:RY)(NYSE:RY) management had a very cautious tone on their Q4 earnings call. They are overweighting their most pessimistic scenarios. And they are expecting pain in 2021. Royal Bank stock, like TD Bank stock are at risk.

TD Bank management is also cautious. They acknowledge that the next few quarters will be tough. They also acknowledge that government stimulus has been the key. This is what made it possible to be in okay shape today. But now the second wave is here. And the second wave is accelerating.

Lockdowns are happening. We will need more stimulus from the government here in Canada. The United States will also need to provide government stimulus. This will be essential to TD Bank’s well-being.

It will be essential for the whole economy, of course. Because the impact of new lockdowns will be real. Health professionals always said that the second wave will be worse. The economic toll will be felt by all banks in 2021.

So in 2021, we can expect provisions for credit losses to be volatile. There’s certainly a real risk that they’ll rise dramatically again.

The bottom line

The bottom line is that uncertainty and risk remain high. We only have to remember the OSFI regulations that took hold at the beginning of the crisis. First, Canadian banks cannot raise their dividends. Second, Canadian banks cannot repurchase shares.

This is a reflection of the risk that is out there. TD Bank stock is trading only 7% lower than pre-pandemic 2020 highs. We will have a better opportunity to buy this top Canadian bank stock in the coming months. We should sit back and wait for it.

Should you invest $1,000 in TD Bank right now?

Before you buy stock in TD Bank, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and TD Bank wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,058.57!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 38 percentage points since 2013*.

See the Top Stocks * Returns as of 2/20/25

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 Karen Thomas owns shares of TORONTO-DOMINION BANK.

If You Thought Apple and Microsoft Were Big, You Need to Read This.

The steel industry produced the world's first $1 billion company in 1901, and it wasn't until 117 years later that technology giant Apple became the first-ever company to reach a $1 trillion valuation.

But what if I told you artificial intelligence (AI) is about to accelerate the pace of value creation? AI has the potential to produce several trillion-dollar companies in the future, and The Motley Fool is watching one very closely right now.

Don't fumble this potential wealth-building opportunity by navigating it alone. The Motley Fool has a proven track record of picking revolutionary growth stocks early, from Netflix to Amazon, so become a premium member today.

See the 'AI Supercycle' Stock

More on Bank Stocks

open vault at bank
Bank Stocks

Better Banking Stock: Royal Bank vs. CIBC Stock

If you're looking for long-term income, bank stocks are a great bet. But which of these is the better buy?

Read more »

open vault at bank
Bank Stocks

Outlook for TD Bank Stock in 2025

The Toronto-Dominion Bank (TSX:TD) has been rising rapidly in 2025. Can it keep up the performance?

Read more »

coins jump into piggy bank
Bank Stocks

Better Banking Stock: CIBC vs National Bank?

Among Canadian banking stalwarts, 2 smaller banks have some of the best growth upside, partly due to their size.

Read more »

Investor reading the newspaper
Bank Stocks

Outlook for CIBC Stock in 2025

CIBC (TSX:CM) stock looks like a great bargain for 2025 and beyond.

Read more »

Confused person shrugging
Bank Stocks

Where Will TD Stock Be in 3 Years?

Despite some recent setbacks, here’s why TD stock could deliver strong returns in the coming years.

Read more »

Piggy bank in autumn leaves
Bank Stocks

Better Banking Stock: Bank of Montreal vs Bank of Nova Scotia

Bank of Montreal and Bank of Nova Scotia are up considerably in the past six months. Is one headed higher…

Read more »

alcohol
Stocks for Beginners

Got $9,000? Invest in This Dividend Stock for $521.52 in Passive Income

You don't have to get the biggest growth stock or highest dividend yield for superb, stable passive income.

Read more »

man touches brain to show a good idea
Bank Stocks

Outlook for Bank of Nova Scotia Stock in 2025

Despite short-term macroeconomic challenges and uncertainties about interest rate moves, Scotiabank’s growth outlook for 2025 and beyond remains strong with…

Read more »