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Want to Invest in the Global Banking Sector? Think Canada

NEW YORK (TheStreet) -- With most of the international banks having reported earnings through mid-year, where are the pockets of strength and weakness and how can you profit from banking globally?

Turns out your best bets outside the U.S. are Canada's Toronto-Dominion Bank (TD - Get Report) and Royal Bank of Canada (RY - Get Report) . TD, at close to $53, is up nearly 12% for the year to date while Royal Bank, at near $81, is up 13% for the same period. The S&P 500 is up 14% YTD.

Read More: Warren Buffett's Top 10 Dividend Stocks

Looking at the 40 largest global banks (by asset size) from 10 different countries (including the U.S.) that trade on our stock market, two fundamental questions need to be asked:

What is the underlying financial strength of the bank, and

Whether, using stock price analysis, this is a good entry point to trade the bank. Just because a bank is a strong financial performer doesn't mean it's a good buy from a stock price point of view. Also, you can't rule out a stock trade from a more modest financial performer with one that has more reasonable underlying stock price fundamentals.

Of the 40 financial institutions I rate for financial strength a quarter were rated below average or poor with about half rated above average or higher. Globally, a majority of the weakness was found in Europe while Canada was a bright spot with two of the five globally high-rated banks i.e. excellent or superior. (The U.S. had the remaining top-rated banks.)

Read More: Tracking the Bank Settlements: A Nonprofit Backed by Banks

What makes Toronto DominionRoyal Bank and the other top-rated financial institutions superior to the rest? They had above-average capital, strong profitability, liquidity and stability with well-managed loan portfolios. The table below summarizes the global banking sector and its financial performance:

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RY $59.35 -0.50%
TD $41.97 -0.64%
AAPL $126.37 2.53%
FB $83.20 -0.13%
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