Friday, April 18, 2008

canadian financial stocks have bottomed!

Wait a minute….Do you really think I would be brash enough to make such a statement, considering as you know, nobody can predict where the market is going. While I am not signing my statement in blood, the trading action over the last couple weeks including this morning's high volume rally in Canadian financials has to have one wondering if we have seen the worst for companies in the money business.

See for yourself, take a gander at the 3 month stock charts for Bank of Nova Scotia, Toronto Dominion Bank, and Bank of Montreal. I am not much of a technical stock chart analyst, however I believe these charts may appear to be showing a bottom. Call it an ABC correction, a double bottom, a higher high, a higher low, or a triple sow cow, but they sure look bullish to me. Readers know I've been wrong before and I'll be wrong again, and they should always make their own decisions based on their own judgement system whether they're a do it yourself investor, or use a financial advisor.

Does any of this matter? Likely not, but if you've been considering buying a position in a Canadian financial, it seems as though the charts are at least showing overcast skies as opposed to a hail storm….. If you buy them for their dividends, and pay little attention to the noise, these charts can become to you nothing but indicators of sale prices, like flyers or coupons. In that case March 17, 2008 would have been a great day to be a frugal shopper.


pitz said...

Exactly MG! Shout it from the rooftops, Canadian banks are different. For starters, most of their mortgages are written such that they can do margin calls and interest rate resets against them every 5 years. Mortgage securitization in Canada is fundamentally different and mortgage insurance is backstopped by CMHC, not by some fly-by-night operator as in the USA. And incomes are rising.

Maybe you will make more money buying some resource or tech stock, but there is no reason why Canadian banks are selling at fire-sale prices.

Cory said...

I'm not so sure after reading this story. If the US goes into a recession because of continued housing and credit problems, it will most likely hit Canada in some form. I'm OK with bank stocks staying on sale a little longer...

Love your blog too.

miked789 said...

I think that they might have seen the worst, but I think we might yet see some downward moves in our market. If the US continues in a downward trend, Canada is sure to follow, and the Canadian stocks are certainly going to follow. Canadian stocks often seem to follow the US stocks, even when they seemingly shouldn't. I guess thats just part of the global economy, or Mr. Market's mania.

'They' expect some more write downs yet, and a surprisingly large number of people will seem to panic even with otherwise good quality companies.

We should also consider how the current very high (and climbing) gas prices will do to the already shaky US economy. Last summer saw a lot of people having to cut back on luxuries, vacations and eating out because of the high gas prices. The US economy is in worse shape now and gas prices continue to rise.

While I hope I am wrong, I would like the opportunity to pick up a few more stocks at bargain basement prices.

This has been my biggest problem so far, determining when to buy in. While they say you shouldn't try to time the market, most people certainly are going to try to wait while stocks are going downward.

Picking bottoms are not easy when you toss in some random (and not so random) events.

Matt said...

I'm thinking the Claymore Financial Monthly Income ETF (FIE) looks like a good way to play the financials. At 5.5 cents a month, it's yielding around 7-8%, and seems like a good way to wait out the uncertainty.

Dividend Growth Investor said...


I have read several dividend blogs and it seems that most of their publishers are looking at shorter term factors like charts, price performance etc.
I do not think that chartology goes well with investing for retirement in dividend stocks. If you wanna play the charts, use mostly charts and very little fundamentals. If you wanna play dividends - watch for the fundamentals and a very little bit of long-term charts..
Just my 2 cents..

MG said...

Making calls on bottoms is fun, but I don't actually think I could ever predict one. I'll always go back to fundamentals and buying quality on sale with the aim of having a low ACB, and a constant rising dividend stream.

miked789 said...

Matt mentioned Claymore Canadian Financial Income... While I understand the concept of ETF's, I wonder about a couple of things.
One is the security of ETF's. What happens if the company goes bankrupt? I also wonder, do ETF's have the same kind of yearly dividend increase that most dividend stocks have? I would think that logically they would, but I haven't found any long term information that supports this.
Do all dividends get passed along? Clearly not. Some have to be used to pay for running the ETF. For staff salaries, office rent, furniture, etc.

So I wonder how much of the dividends are used. From what I can tell, the ETF under discussion (FIE) had a single increase in the last 12 months, of .005 cents, on 5/29/07. From 10/27/05 until now, only one increase. I think it is highly unlikely that out of all the holdings in this ETF that none of them increased dividends in that period. In fact, the last few years have seen some healthy increases from a number of companies. I have to say to be fair that there have been some decreases, esp in the Canadian energy income trust sector. I don't know if the income trusts held by FIE saw cuts, but I also wonder about having energy income trusts in a 'financial sector ETF'. It also contains a number of Canada treasury bonds and preferred shares of various companies. So, while a number of companies held in this ETF saw significant dividend increases, it didn't seem to get passed along to the unit holders.

I am not trying to rain on your parade, but I am curious, since the point of a decent dividend investment, is not just dividends but more importantly, increasing dividends. I am not sure if an ETF can give the kind of increases that are needed for decent dividend growth.

If someone has worked out the numbers, I would love to hear about it.