Financial services stocks are running hot these days, racking up huge gains since deregulation-oriented Donald Trump won the White House on Nov. 8.
With all the attention lavished on gigantic U.S.-based banks such as JPMorgan Chase, Bank of America and Wells Fargo, a superb growth investment based north of the border gets short shrift: Bank of Nova Scotia (BNS) , also known as Scotiabank.
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Canada often serves as a comedic punchline, which doesn't give this thriving country its due. The Great White North survived the 2008-2009 global financial calamity better than the U.S. and Europe, largely because its banks were less risky and more prudent than their peers in other developed countries. It's on this solid foundation that Scotiabank has been methodically expanding operations in Canada and around the globe.
Canada under Prime Minister Justin Trudeau is on the cusp of strong growth in 2017, although this vast country doesn't always get the investor attention that it deserves. That presents an opportunity for you.
With a market cap of $71.37 billion, Scotiabank is one of the best-run banks in the world and is positioned for multiyear earnings growth. Headquartered in Toronto, Scotiabank is well diversified in both operations and geography and it's expanding through organic growth and acquisitions.
Canadian banks are an underappreciated investment overall. The nation's banks are among the world's strongest and safest. Canada restricts domestic competition for its banks from foreign companies, while also imposing stricter regulatory controls than does the U.S.
Banking rules in America are about to get a lot looser under Trump, with unforeseen consequences. Although tougher oversight reduces Canadian banks' room for growth, it also limits the potential for financial excesses, as experienced in the U.S. leading up to the Great Recession.
In a world beset by political turmoil, unsustainable debt and financial scandal, Canada's stability combined with historic strength in banking make the country a solid long-term growth investment.
Scotiabank is a proxy for Canada's financial sector, with highly diversified operations through four segments: Canadian banking, international banking, global wealth management, and global banking and markets. The company also is expanding through acquisitions in Latin America and Asia.
Scotiabank plans to report fiscal first-quarter earnings on Feb. 28.
Keeping track of the company's reported earnings and analysts' expectations for them can be tricky for U.S. investors, because Bank of Nova Scotia officially reports results in Canadian dollars.
But, according to Yahoo! Finance, analysts on average predict the company will have adjusted earnings per share (in U.S. dollars) of $1.19 for the latest quarter, vs. $1.10 for the year-earlier period.
According to Yahoo! Finance's data for the Toronto-listed shares of Bank of Nova Scotia, that translates to adjusted EPS of C$1.57 in the latest quarter, vs. C$1.44 a year earlier.
On average, analysts peg adjusted EPS for this year at $4.88, or C$6.40, vs. $4.62, or C$6.05, a year before.
Next year's EPS is projected at $5.25, or C$6.88. The consensus is that earnings growth over the next five years will reach 4.9% on an annualized basis.
With a dividend yield of 3.6%, Scotiabank should also appeal to income investors. What's more, the company trades at a reasonable 12-month trailing price-to-earnings ratio of only about 14, compared with an average P/E of 15.8 for money center banks.
If you're looking for a rock-solid banking play in a developed democracy, you don't have to look much farther than our northern border. As Canada's best-of-class financial institution, Scotiabank provides a trifecta of growth, income and value.
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