TD Bank (TD TSX)
TD has had a difficult couple of years, but it remains Canada’s second-largest bank and it remains among the largest banks in America as well. We believe the franchise has been tarnished by recent wrongdoings on both sides of the border, but not irreparably so – this bank has historic roots that pre-date the Confederation of Canada and we see an enduring franchise value that will regain its lost lustre. Last week’s announcement of a new CEO clears a long lingering uncertainty in the minds of investors about who would take over the reins from the outgoing CEO. Moreover, we believe is a very strong indication that the anti-money laundering investigations in the U.S. have been adequately provisioned for and will likely be concluded by year-end as the company recently indicated they expect. In the meantime, the opportunity at hand is to buy the shares at an unusually wide five to 10% discount to the Big Six bank average price/earnings and price/book trading multiples and yielding nearly five per cent before the last of the regulatory dark clouds part, paving the way for an upward re-rating in the shares.