Bank stocks are up 13% so far this year, outperforming the S&P/TSX by 550 basis points, notes National Bank in its second-quarter earnings preview of the sector.
Analyst Gabriel Dechaine writes that since the end of the first-quarter reporting season, Canadian banks have outperformed the market by 800 bps.
"Betting against the banks has been unwise, with them consistently beating expectations over the past two years," he warns, adding that, trading at 14x on forward EPS, the group is priced for positive EPS surprises or revisions. Barring a margin or credit surprise, the onus falls on the Capital Markets to deliver this outcome, which isn't impossible considering several favorable market conditions.
Dechaine's top picks are Royal Bank of Canada (RY.TO) and Toronto-Dominion Bank (TD.TO).
The U.S. loan growth factor would also be supportive of BMO (BMO.TO), considering the importance of its U.S. P&C segment's top-line expansion towards achieving the 12% ROE mark sometime in 2027, Dechaine adds.
Price: $251.72, Change: $-0.71, Percent Change: -0.28%