Is Bank of Montreal the Best Canadian Bank to Invest in?

Canadian banks have dodged the financial crisis in a way that eluded their U.S. counterparts. They chose to be conservative and refrained from the reckless sub-prime lending and investing in risky mortgage-backed securities. No wonder Canadian banks have been posting impressive earnings results and making their presence felt internationally. Among them, I find Bank of Montreal (NYSE: BMO  ) to be particularly interesting.

Performance
The bank has been manufacturing some significant operational improvements since the recession hit, such as declining provisions for credit losses. It has also seen gradual strength in its capital base lately.

In its latest quarter, BMO reported net income of $830 million. Provisions for bad loans fell once again, and its return on equity is strong. The bank saw an improvement in net interest margin, too, owing to better loan and deposit spreads. BMO is focusing on core operations and preparing to surpass its rivals.

The growth plan
BMO, like other Canadian banks, has been focusing on strengthening its U.S. business. Its recent acquisition of Marshall & Ilsley Corp. should help the bank expand its presence in the U.S. by adding M&I’s asset management and institutional trust business.

What makes BMO stand out?
The table below should give you a clear idea why I like BMO more than its peers: it’s cheaper.

Company

P/E
(TTM)

P/B

Tier 1 Capital Ratio

Dividend Yield

Bank of Montreal 11.9 1.31 11.5% 4.7%
Royal Bank Of Canada (NYSE: RY  ) 13.3 2.06 13.6% 4.2%
Toronto-Dominion Bank (NYSE: TD  ) 13.5 1.75 12.7% 3.5%
The Bank of Nova Scotia (NYSE: BNS  ) 11.8 2.14 12.0% 4.0%

Source: Capital IQ, a Standard & Poor's company.

BMO has the most compelling figures in the table. Though its Tier 1 capital ratio declined last quarter (reflecting the M&I acquisition), it remains above required levels.

Furthermore, the bank offers a higher dividend yield than its competitors and appears to be more attractively priced at the moment. And the fact that it has the lowest P/E (except for BNS) and P/B ratios shows that the market hasn’t factored in the advantages yet.

The Foolish bottom line
As I see it, with such strong fundamentals and smart acquisitions, BMO reveals strong potential for growth. On the whole, it looks like a pretty cheap stock set to rule the roost.

Fool contributor Zeeshan Siddique does not own any of the stocks mentioned in the article. Motley Fool newsletter services have recommended buying shares of The Bank Of Nova Scotia. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1544478, ~/Articles/ArticleHandler.aspx, 10/21/2014 12:00:56 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 hours ago Sponsored by:
DOW 16,399.67 19.26 0.12%
S&P 500 1,904.01 17.25 0.91%
NASD 4,316.07 57.64 1.35%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/20/2014 4:02 PM
BMO $71.34 Up +0.56 +0.79%
Bank of Montreal (… CAPS Rating: ****
BNS $59.64 Down -0.07 -0.12%
The Bank of Nova S… CAPS Rating: ****
RY $70.25 Up +0.32 +0.46%
Royal Bank of Cana… CAPS Rating: ***
TD $47.59 Up +0.16 +0.34%
The Toronto-Domini… CAPS Rating: ****

Advertisement