Here we go again! Canadian bank stocks were dealt another turbulent session, as the TSX Index wobbled following the release of America’s consumer price index (CPI) numbers. Inflation is acting quite stubborn, making it unclear as to when relief on rates will finally come raining down.
The good news is that long-term investors don’t need to concern themselves with a matter that everybody else is already concerned about. It doesn’t really matter if the Federal Reserve (down in the States) cuts a few months earlier, later, or just according to schedule. At the end of the day, smart investors look to individual companies and how they’re poised to perform over the course of years if not decades.
Seeking great companies at decent multiples. How about the bank stocks?
Personally, I think the best holding period for a truly wonderful stock ought to be measured not in years but decades. Though it’s unrealistic to hang onto shares of a company for many decades at a time, I do think that the wealth-creative effects of those truly wonderful businesses would incentivize you to hold shares, even after considerable gains have been accumulated.
Is it a bad idea to trim or take profits when you have the opportunity to do so?
Definitely not. However, if you don’t have any better ideas for gaining profits, it may be wise to just hold, especially if a company’s fundamentals are improving and earnings have been growing by enough to support a stock’s appreciation.
In this piece, we’ll check out the bank stocks, which, I believe, are close to the cheapest they’ve been in many years. Canada’s economy isn’t exactly in a bright spot right now, not with lingering inflation, hefty consumer credit card balances, and some stress on those holding variable-rate mortgages.
Though the future will always be uncertain, investors must remember that Canada’s banks were built to last, not just through good times but through the worst of times. That alone gives me the confidence to nibble away at battered bank shares as most other investors move on to “sexier” investments like those in the technology space. If low valuations and strong franchises are what you seek, the banks are tough to top, in my opinion.
Bank of Nova Scotia stock: A bargain in banking?
Bank of Nova Scotia (TSX:BNS) is one Canadian bank stock that looks too cheap for its own good after sinking around 8% over the past year. The stock trades at 11.1 times trailing price-to-earnings (P/E), with a 6.69% dividend yield. Now, the low multiple and high yield come at a cost. The internationally focused Canadian bank has faced plenty of pressure, and the coming earnings results aren’t going to be the best in the world.
That said, I think it’s far better to bet on a dirt-cheap bank stock ahead of low expectations than own the hottest stock on the planet at an absurd price, with expectations that demand will increase. In the case of some AI stocks, perhaps even more than perfection will be sought by investors looking for fast gains.
Even Bank of Nova Scotia analyst Meny Grauman sees “tough years” ahead when it comes to the profit growth potential of the banks. Personally, I think far too many investors have already thrown in the towel at this point, with the assumption that the banks are dead money at this point.
