Don't get tempted by the dividend, Canadian banks just keep grinding lower: Chris Kerlow
The first set of third-quarter earnings from Canadian banks show the industry is facing rising expenses, but one portfolio manager says now is not the time to sell these stocks.
TD Bank missed analyst expectations amid rising expenses and loan loss provisions as it reported results on Thursday, while RBC beat expectations and announced planned layoffs as it also battles with elevated costs.
Despite near-term challenges, Canadian banks are positioned to weather economic downturns and their stocks will rise again, according to Paul Harris, partner and portfolio manager at Harris Douglas Asset Management.
"You own them here, not sell them here,” Harris told BNN Bloomberg on Thursday.
He argued that the Canadian bank stocks are trading at discounted levels and investors will be rewarded if they hold onto them.
“Over the next couple years they are going to generate a great return, especially if the interest rate market changes,” he said.
Harris said he is not concerned about the impact that a possible economic downturn might bring for the banks because they more diversified than ever before in terms of revenue streams, capital and how they management strategies.
In this environment, he pointed to TD Bank as being particularly well positioned to make future gains.
“(TD) certainly have the ability to buy other assets because of their capital base, which allows them to maybe grow their business a lot more than other Canadian banks,” he said.
TD also announced it would be buying back a nearly five per cent of its shares.
"TD modestly missed estimates, however, any disappointment will likely be offset by the significant share repurchase program (4.9 per cent) announced in conjunction with earnings," John Aiken, head of Canada research at Barclays, wrote in a not to clients on Thursday.
As for RBC, he forecasted long-term success will be within reach as the bank manages costs through its restructuring plans.
“(Canadian banks) have lots of wonderful things that make a great business,” he said.
Another expert believes that bank stocks could fall further.
“We just think the sentiment could wane for the next quarter or two and seasonality headwinds have us kind of waiting on the sidelines for the moment,” Chris Kerlow, portfolio manager at Canaccord Genuity's Team LWC, told BNN Bloomberg on Thursday.
Kerlow said he favours the buy low, sell high investment strategy and he is looking for the a further deal to arise within the stocks (what does that mean?). However, he still pointed to the overall strength Canadian banks hold within a portfolio.
“We’ll always probably have a couple of the these bellwether Big Six banks, they’re just such a large part of the (TSX),” he said.