Alert: High Insider Buying at This Canadian Bank

Why you should follow insiders into Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) stock after a promising third quarter.

| More on:
Bank sign on traditional europe building facade

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn moresdf

Insider selling can mean anything: execs could be looking to offload excess share bonuses, or they’re raising cash for personal reasons or for better portfolio diversification, or maybe there is something fundamentally wrong with the business.

Nobody really knows when it comes to insider selling, but one thing is for sure: insider buying means that execs are bullish and believe that common shares on the public market are undervalued.

After falling into bear market territory on two separate occasions over the past year, it finally appears that Scotiabank (TSX:BNS)(NYSE:BNS) is ripe for picking. Insiders have been scooping up shares on the way down over the past year, with the CEO and directors reportedly picking up over $3 million in shares over the past year.

Now that shares have bounced off 52-week lows following the release of some solid third-quarter results, does it make sense to lock in the 5% yield by picking up shares at a better cost basis than most of these bullish insiders?

I think so. Here’s why:

First, Scotiabank’s exiting from Puerto Rico has likely eased investor fears over the higher risk of impaired loans from the emerging market. Leaving Puerto Rico and the Virgin Islands should help Scotiabank better navigate the rough waters, as we enter the next phase of the credit cycle.

Scotiabank’s exit from the Puerto Rican market did come with a $402 million cost, but at this juncture, where everybody is concerned about rising provisions, I’d say such de-risking efforts are more than worthwhile.

Second, provision growth seems to be grinding to a halt, with $713 million for the third quarter, lower than the $873 million witnessed last quarter. Expenses also seem to be stabilizing, which bodes well for investor sentiment.

Third, integrations from prior acquisitions seem to be going smoothly. The high potential for integration risks was a concern of many investors, as Scotiabank had been wheeling and dealing at an inopportune time before macro pressures began to mount.

Fourth, Scotiabank stock remains ridiculously cheap. The stock trades at just 9.7 times next year’s expected earnings, 3.1 times sales, and 1.4 times book, all of which are considerably lower than the bank’s five-year historical average multiples of 11.6, 3.4, and 1.6, respectively.

Foolish takeaway

Insider buying is high, and for a good reason. Scotiabank looks undervalued after the reveal of better-than-feared results. I still think there’s a bit of unwarranted fear baked into the stock right now, and as the bank continues making moves to improve its risk profile, I see investors gradually returning to the market darling over time.

Stay hungry. Stay Foolish.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. Scotiabank is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

growing plant shoots on stacked coins
Dividend Stocks

5 Dividend Stocks to Buy With Yields Upwards of 5%

These five companies all earn tonnes of cash flow, making them some of the best long-term dividend stocks you can…

Read more »

funds, money, nest egg
Dividend Stocks

TFSA Investors: 3 Stocks to Start Building an Influx of Passive Income

A TFSA is the ideal registered account for passive income, as it doesn't weigh down your tax bill, and any…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

3 of the Safest Dividend Stocks in Canada

Royal Bank of Canada stock is one of the safest TSX dividend stocks to buy. So is CT REIT and…

Read more »

Growing plant shoots on coins
Dividend Stocks

1 of the Top Canadian Growth Stocks to Buy in February 2023

Many top Canadian growth stocks represent strong underlying businesses, healthy financials, and organic growth opportunities.

Read more »

stock research, analyze data
Dividend Stocks

Wherever the Market Goes, I’m Buying These 3 TSX Stocks

Here are three TSX stocks that could outperform irrespective of the market direction.

Read more »

woman data analyze
Dividend Stocks

1 Oversold Dividend Stock (Yielding 6.5%) to Buy This Month

Here's why SmartCentres REIT (TSX:SRU.UN) is one top dividend stock that long-term investors should consider in this current market.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

Better TFSA Buy: Enbridge Stock or Bank of Nova Scotia

Enbridge and Bank of Nova Scotia offer high yields for TFSA investors seeking passive income. Is one stock now undervalued?

Read more »

Golden crown on a red velvet background
Dividend Stocks

2 Top Stocks Just Became Canadian Dividend Aristocrats

These two top Canadian Dividend Aristocrats stocks are reliable companies with impressive long-term growth potential.

Read more »