The Canadian bank stocks have been dealt a tough hand amid inflation and other macro headwinds. Still, some members of the Big Six have been able to move on and rally toward new highs despite the industry woes.
Other names, such as TD Bank (TSX:TD), have continued to sag lower by the week. Right now, the stock can’t seem to form any sort of bottom. Indeed, this year has been rather unkind to shares of TD Bank, primarily due to uncertainties and worry surrounding TD’s money-laundering problems. The bank has taken drastic action to ensure it doesn’t repeat mistakes made in the past. Whether such moves taken after the fact will be good enough to appease regulators remains the big question.
Should regulators come down harder than expected on TD Bank (perhaps limiting the bank’s acquisitive potential south of the border), there’s a good chance the stock could continue to lag the rest of the banking scene and the TSX Index. In any case, you’re getting a good price for a high-quality bank that will find a way to grow again.
Management still wishes to grow. Could regulatory penalties erode this growth?
Moving forward, TD Bank is expected to have somewhat slower growth. While management is still dedicated to growing the bank over the long haul, we’ll just have to stay tuned as U.S. investigations continue.
Apart from regulatory pressures and fines to be imposed, TD Bank has also clocked in a few underwhelming quarters of late. As interest rates fall further, perhaps TD Bank will benefit from the same tailwinds that some of its peers have enjoyed over the past few months.
Of course, most of the focus will be on updates surrounding regulatory investigations. Either way, the stock is so incredibly battered that I simply do not see such updates as a source of extreme downside from here. I could be wrong, but whenever you have a stock that is so punished, you may have a margin of safety against the disappointments that would have otherwise sent a fairly valued stock crumbling.
Indeed, TD stock has already taken a massive hit, with shares off more than 15% in the past two years. With so much negative momentum pushing shares lower, it’s not hard to imagine that many income investors are opting for any one of TD’s five peers right now.
TD stock is getting too cheap
While I don’t blame investors for passing on TD over peers (who needs such a horrid overhang that other banks lack?), I view TD stock as having the most room to recover going into the second half. While I have no idea what the catalyst will be, I think that shares are so cheap that an okay quarter may be enough to bring the buyers back to the name, especially those market newcomers seeking a great deal and a juicy, growing dividend.
As always, be aware that there’s an added layer of risk with TD compared to its peers. As a result, you’re getting a discount, and right now, I think that relative discount is too excessive, even given the severity of the uncertainties that have come to light in recent months. In short, TD stock is still a good buy. In fact, it’s a great buy.
