Big Banks Drop: Why Now is the Time to Buy

Bank stocks have fallen off the face of the earth, but should you see this as a potential buying opportunity? For these stocks, I’d say yes.

| More on:
a person watches a downward arrow crash through the floor

Source: Getty Images

American banks plummeted over the last week after the closure of SVB Financial Group, that came right on the heels of Silvergate. SVB was the go-to bank for tech startups in Silicon Valley, whereas Silvergate focused on cryptocurrency. Both are industries that have dropped heavily in the last year.

Not surprisingly, the closure of these banks led to a major drop in American bank shares across the board. The contagion then moved across the border to Canada, where the Big Six Banks all felt the sting.

Yet in my view, now is the time to buy. That is, if you’re a long-term holder looking for a deal. It doesn’t get much better than this, and you’re sure to see a rise, especially for these two bank stocks.

Royal Bank stock

Royal Bank of Canada (TSX:RY) wasn’t immune to the recent drop in bank stocks, even though it’s the largest of the Big Six Banks. With a market capitalization $182.5 billion, RBC stock has long claimed the top spot.

Yet this didn’t protect it from movements across the border. RBC stock is down 5.4% in the last month, falling 4% alone in the last few days, at the time of writing. However, in the last year alone, it’s only down by 1%. So what gives?

RBC stock remains at the top because it is prepared. This is true in a number of ways. The bank has provisions for loan losses to protect it from these drops. It has exposure to a diverse set of investments, including emerging markets and wealth and commercial management. All of this has created a lucrative business environment that will keep it afloat.

So afloat, in fact, that during downturns it takes about a year for the bank to return to pre-fall prices. After dropping 46% from peak to trough during the Great Recession, shares rebounded by July 2009. So, I would certainly take this time to look at the bank stocks and consider RBC stock for this reason. As well as its 3.9% dividend yield while it trades at 12.7 times earnings.

TD stock

RBC stock may be the largest by market cap, but Toronto Dominion Bank (TSX:TD) is a close second at $148.9 billion. Yet, the situation has been dramatically different compared to that of RBC stock, with shares down almost 13% in the last month alone.

The reason for this might be the choice that TD stock made when it comes to its own diversification. While it’s one of the bank stocks that has certainly entered the wealth and commercial management sector, it’s not as groomed as RBC stock.

Further, loan repayments are strong, and it offers a multitude of loan repayment options depending on your financial needs. This is great, of course, but it’s not going to exactly bring in an enormous amount of revenue compared to that of RBC. Even still, it’s certainly an improvement compared to the other bank stocks.

Then, there’s its exposure to the United States, as one of the top 10 banks in the country. While this might seem like a bad thing given the downturn, I’d argue it’s not. America tends to recover quickly, so exposure to Canada and the U.S. could be very good for TD stock.

Meanwhile, you can look to the past for how shares may perform. TD stock dropped about 50% from peak to trough during the Great Recession over almost a year. By September, it had recovered and climbed from there. Shares are now down 13.7% in the last year, dropping almost that much in a month. But again, it’s one of the bank stocks I’d hold while trading at 10.1 times earnings, and with a 4.48% dividend yield to boot.

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 Amy Legate-Wolfe has positions in Royal Bank Of Canada and Toronto-Dominion Bank. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Bank Stocks

stock research, analyze data
Bank Stocks

Canadian Bank Stocks: Buy, Sell, or Hold?

There are opportunities and risks on the horizon for the Canadian banks.

Read more »

data analyze research
Bank Stocks

Where Will TD Stock Be in 5 Years?

Toronto-Dominion Bank (TSX:TD) has taken a beating over the last year. Where will it be in another five?

Read more »

Paper Canadian currency of various denominations
Bank Stocks

1 Magnificent Canadian Dividend Stock Down 28% to Buy and Hold for Decades

This top Canadian dividend stock is underperforming its large peers this year, but a turnaround could be on the horizon.

Read more »

data analyze research
Bank Stocks

Is BMO Stock a Buy for its 4.8% Dividend Yield?

Canadians are looking to cut back, and BMO stock is on board. But it could also be a top stock…

Read more »

Investor reading the newspaper
Bank Stocks

Is Canadian Imperial Bank of Commerce Stock a Good Buy?

CIBC is a TSX bank stock that has delivered marketing-beating gains to shareholders in the last two decades. Is the…

Read more »

Man data analyze
Bank Stocks

Where Will TD Stock Be in 5 Years?

TD stock is a good consideration for a 5.2% dividend on the recent dip. It provides upside potential, too, but…

Read more »

customer uses bank ATM
Bank Stocks

These 3 Canadian Bank Stocks Are Next in Line to Pop

Let's dive into three Canadian bank stocks that look well-positioned to continue to soar over the long term.

Read more »

a person looks out a window into a cityscape
Stocks for Beginners

Bank of Montreal vs. RBC: Which Canadian Bank Stock is the Better Buy?

Earnings season is upon us, and the Canadian banks will be reporting before you know it. So which of these…

Read more »