Teal Linde -BNN - TOP PICK TD BANK (TD TSX)
TD Bank suffered a worst-case scenario with regard to its money laundering penalties. It has been fined US$3.1 billion and will be subject to an indefinite asset cap in its U.S. retail business. However, earnings per share growth is only expected to slow by about two percentage points per year, allowing for a still tolerable mid-single-digit earnings per share (EPS) growth, due to the asset cap as the bank is still able to grow its much larger Canadian banking division and its capital markets business in the U.S. The asset cap slows down growth but does not eliminate it. Currently, TD is trading at 9.6 times fiscal 2025 expected EPS, which is nearly a 20 per cent discount to its peer average. It now trades at the lowest P/E of the six major Canadian banks despite being expected to remain the third most profitable bank next year on a return on equity (ROE) basis. Thus, the decline in its share price appears overdone, settings its stock up for at least a partial recovery over the next year. From its current price of $77, a return to just $81 would still result in a double-digit total return when including its five per cent dividend yield.
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