So far in earnings season, the banking sector has posted pretty good results. And, thanks to the recent market sell-off, many bank stocks are now quite a bit cheaper than they were a few weeks ago.
We asked three of our analysts what bank they would buy going into November, and here is what they had to say.
Amanda Alix: One bank stock that I think looks particularly appealing at the moment is Toronto-Dominion Bank (TD -0.42%), a Canadian-based go-getter that has greatly increased its footprint here in the U.S. over the past few years.
The bank is about 10% off of its 52-week high right now, possibly due to concerns voiced recently by analysts worried about regulatory changes in Canada that could force bondholders to take a loss if a crisis in the banking sector arose.
Still, there are several reasons I think this bank is a winner. Despite a slowdown in mortgage lending of 70% from last year, TD had strong third-quarter results, with earnings per share up 40% year over year. Though the bank has warned of some downside in its earnings for the fourth quarter, analysts at Credit Suisse recently upgraded the bank to outperform, asserting that guidance is now baked into the stock price.
Another plus is the recent $850,000 settlement TD reached with regulators over a data breach in 2012, now in the bank's rearview window.
TD has reduced its dividend over the past year, but still delivers a yield of close to 3.5%. During its last earnings call, the bank did not specify when it will revisit dividend payouts, but did say it expects dividend growth to "outpace EPS growth" – which may portend good news for investors.
Matt Frankel: I completely agree with Amanda that TD Bank is one of the best in the sector, but I'm going to go in a slightly different direction. After an excellent quarterly report, my favorite bank stock going into November is Bank of America (BAC -0.13%).
Aside from the bank's settlement with the Justice Department that was absorbed this quarter, the numbers really looked great across the board. And, some of the bank's businesses grew at very impressive rates.
For example, Bank of America's client brokerage assets grew by 21% year-over-year and saw positive inflows of money into accounts. And, the bank issued 1.2 million credit cards during the third quarter alone, a 15% higher rate than a year ago. Both of these should really make a difference in the bank's future earnings.
And, 64% of the credit cards went to the bank's current customers. Finally learning a lesson from competitor Wells Fargo, the bank is concentrating more on selling to its own customers, which is much more cost-efficient than trying to recruit new ones.
Despite the excellent quarter, the company's stock price isn't really reflecting it as much as it should. In fact, the share price is actually below where it was a couple of weeks ago, thanks to the recent market sell-off.
So, heading into November, Bank of America is the bank stock I would be buying. It won't be on sale forever.
John Maxfield: Let me start out by saying that as a general rule now probably isn't the best time to buy bank stocks. Any hope of picking one up at a decent valuation has been dashed by the run-up in equity prices over the last few years.
But aren't Bank of America and Citigroup still trading at discounts to book value? They are. But there's a reason for that. With all due respect to my colleague Matt Frankel, these are two of the worst-run banking operations in the United States. And they have been for many decades -- Bank of America since at least the 1970s and Citigroup for perhaps a century or more.
Nevertheless, if I had to pick a bank stock to buy in November, it would be US Bancorp (USB 1.56%) -- though M&T Bank (MTB 0.75%) isn't far behind. I literally cannot think of a better run bank, or company for that matter, than the Minneapolis-based regional lender.
To oversimplify the matter only slightly, good banking boils down to two things: A culture of prudent risk management and an obsession with expenses. And on both of these scores, US Bancorp is almost without peer. As a result, even though it trades for nearly two times book value, its consistent record of producing double-digit returns on equity make it a worthy addition to any investor's portfolio.
