TFSA Investors: These 3 Bank Stocks Are Too Cheap to Ignore!

Small banks like Laurentian Bank (TSX:LB) are getting extremely cheap.

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

Banks are some of the cheapest stocks on the TSX. With P/E ratios hovering between 10 and 12, they’re far less expensive than most classes of equities. Unlike cheap stocks in the energy sector, the banks are also growing (albeit slowly), which means they can continue to pay or even raise dividends. Right now, any of the Big Six bank stocks would be cheaper than the average TSX stock. However, there are a few banks that stand out as being inexpensive, even for this very modestly valued sector. The following are three of the cheapest.

Canadian Imperial Bank of Commerce

Canadian Imperial Bank of Commerce is the cheapest Big Six bank, with a P/E ratio of just 9.74. As a largely domestic-focused bank, it has attracted some criticism for its slow growth prospects and exposure to deteriorating consumer credit.

It is true that CIBC is fairly domestic-oriented for the time being. However, the bank has ambitions to expand into foreign markets, and we’ve seen some encouraging signs on that front. CIBC’s U.S. division is currently small, but is growing every quarter. According to Fool contributor Chris Liew, the bank is aiming to have up to 25% of its earnings coming from foreign countries in the future. If that comes to pass, it could generate significant growth for the company, as we saw with TD’s foray into the States.

Laurentian Bank

Laurentian Bank of Canada is a small Quebec bank that does business mainly in its home province.

The bank’s stock started falling last year after it was discovered that it had issued hundreds of faulty mortgages. The bank was forced to buy back many of the mortgages it had issued, at a cost of $400 million. That’s a big hit to the balance sheet. It was followed up by a series of earnings misses in 2019, with net income down 33% in the first quarter and 13% in the third. In more encouraging news, Laurentian Bank recently had major success in a collective bargaining agreement that granted it many benefits, so the company may see reduced costs in the years ahead. However, this company’s earnings trend has undeniably been negative this year, so proceed with caution.

VersaBank

VersaBank is a small bank that touts itself as Canada’s only 100% online financial institution. With no branches, it’s a much leaner operation than your average big bank. And, as a small bank, it has much more room to grow. Year to date, the bank has increased its net income by 15%. That’s a much higher growth rate than you’ll get from any of the Big Six — even TD, with its mighty U.S. retail business.

Even with all this growth, VB only trades at 7.98 times earnings. That’s mighty cheap for a company growing at 15% year-over-year. While the company’s most recent quarter was weaker than the previous two, the long-term earnings trend is extremely encouraging, suggesting that this stock is a bargain relative to future cash flows.

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 Andrew Button owns shares of TORONTO-DOMINION BANK.

More on Bank Stocks

Bank sign on traditional europe building facade
Bank Stocks

The 3 Canadian Bank Stocks Worthy of Your TFSA

TD Bank (TSX:TD) and two other Big Six Canadian bank stocks look like great value options for TFSA investors in…

Read more »

think thought consider
Bank Stocks

RBC Stock: Should You Invest in February 2023?

Royal Bank of Canada has delivered stellar returns to investors in the last 20 years. But is RBC stock a…

Read more »

Bank Stocks

I Keep Buying Shares of This Dividend Stock Hand Over Fist

I have been buying shares of Toronto-Dominion Bank (TSX:TD) hand over fist for years.

Read more »

calculate and analyze stock
Bank Stocks

BNS Stock: A Smart Investment Today?

BNS stock has risen 11% in 2023 so far. But is it worth buying today? Let’s find out.

Read more »

edit Businessman using calculator next to laptop
Bank Stocks

Why RBC Stock Is the Most Valuable Stock on the TSX Today

Any investor can have peace of mind their growing wealth long term by owning Royal Bank of Canada (TSX:RY) shares…

Read more »

sad concerned deep in thought
Bank Stocks

Is goeasy the Best Growth Stock to Buy in February 2023?

goeasy stock has lost 15% in the last 12 months but has returned over 250% in the last five years.…

Read more »

Man holding magnifying glass over a document
Bank Stocks

BMO Stock: Is it a Good Investment Today?

Have you considered BMO for your portfolio? Here’s why this big bank may be a good investment for today, tomorrow,…

Read more »

question marks written reminders tickets
Bank Stocks

TD Stock: Is it a Good Investment Today?

TD stock is up more than 6% in 2023. Are more gains on the way?

Read more »