Monday, July 30, 2007

canadian financials dive

Canadian financial stocks were still falling today after giving up the entire year's gains last week. Fears of rising interest rates are sending most financials South, with some exceptions.

XFN, an exchange traded fund (ETF) that tracks Canadian large cap financial stocks is currently over 7% below it's 52 week high, and yielding 2.5%. XFN is trading at $52.86 and is in correction-mode technically, the next resistance point I can see is around $52.30.

Banks I follow in Summary:

Bank of Montreal (BMO) is now yielding 4.1%, trading at a P/E of 12.7, and trading at it's lowest levels since Fall of 2006. BMO was recently involved in some shady trading activity where they had the potential to lose large sums of money due to bad natural gas bets. Technically BMO looks horrible, as it traded today as low as $66.70 which is a low not seen since October, 2006 as far as I can see. The next resistance point looks to be around $65.80. The chart looks like a jagged hill sloping downward.

Bank of Nova Scotia (BNS) who is gaining a reputation as Canada's international bank is now yielding 3.7%, and is trading at levels not seen since October, 2006. The bank is trading at a P/E of 12.6, and a forward P/E of 11.2. Technically the chart looks to be in a free-fall, unless it bottomed today. It could see resistance around $48.00 if it falls further. Scotiabank is 10% below its 52 week high.

Royal Bank of Canada (RY); Canada's largest company by market cap, is yielding 3.3%, and is trading at $53.99 which is a P/E of 13.4 and a forward P/E of 11.7. Royal is 10% off it's 52 week high, but $53.60 would be a major resistance point that it has not yet broken. If the stock breaks below $53.60, the potential for more downside is present.

Toronto Dominion Bank (TD)'s chart appears pretty solid, and the stock is holding up relatively well. The company is yielding only 3.0%, and is trading at a P/E of 14.9, with a forward P/E of 11.4. The stock has some resistance around $68, and is currently holding up trading at $68.85, which is 8% off it's 52 week high.

Valuation-wise I like BNS here as I believe it is trading at a significant discount to fair value. BMO is starting to look more attractive as it gets lower here, but I would like it lower yet. The other two banks don't excite me at these levels.

- Even if the bank earnings do get hurt by higher interest rates in the near-term I am confident buying BNS or BMO soon for the long term if they keep declining.


FourPillars said...

My ACB on my BMO is $69.40 so in retrospect I should have waited...

Oh well I'll be doing more buying at some point. Not sure if I want too much BMO although I like it, BNS is starting to look good with its yield.


Nurse B, 911 said...

Made some comments both on my blog & over in the Value Thread on CBF including your beloved BAC.

dingus said...

One thing in TD's favour is a low dividend payout ratio, so there's perhaps a good prospect for dividend increases.

I agree with the take on BNS generally, and am buying. BMO perhaps, but I'm not as comfy with earnings going forward after the natural gas debacle. I'm less inclined on Royal because they are heavily into the derivatives market -- perhaps there's a BMO issue looming in its future, and they just seem so ... big... that it's hard to see any decent buying opportunity arise.