Today we’re going to take a look at three stocks on the TSX index that can offer peace of mind to a cautious investor. However, although all three stocks are expected to grow their earnings next year, only one of them is a strong buy – but which is it? From a Big Six banker to two regionalized options, here are three of the best financial stocks in Canada, selected for a low-risk investor.
Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) With a beta of 1.07 relative to the TSX index, CIBC is only marginally more volatile than the TSX index, getting it off to a good start. Its one-year past earnings growth of 10.3% is fairly standard for a Big Six banker, while an average five-year earnings growth of 10.9% demonstrates the kind of plodding dependability a low risk investor looks for in a banking stock.
It’s an attractively valued stock with a price-to-earnings of 9.8 and near-market P/B. Bringing a beefy dividend yield of 5.06% to the table, it’s also expected to grow its earnings by 5.8% over the next couple of years. A word of caution, however: CIBC insiders have only sold shares in the past three months, with over $1 million worth of shares getting dumped, suggesting that confidence in growth may not be at its highest right now.
Laurentian Bank of Canada (TSX:LB) Headquartered in Montreal, this gem of a banking stock is often touted as among the best outside of the Bay Street pack. A solid non-Big Six banker to add to the financials section of a portfolio, its $2 billion market cap and beta of 0.99 relative to the TSX index make for a fairly defensive play.
The stats show that Laurentian Bank of Canada is marginally superior to CIBC: at a glance, its five-year average earnings growth of 14.3% is higher by almost half, while its market ratios are a touch lower. Laurentian Bank of Canada also pays the higher dividend yield of 6.19% (one of the highest in the sector), and is looking forward to a more positive earnings growth of 9%.
Canadian Western Bank (TSX:CWB) An undervalued star with a solid balance sheet and paying a +3% dividend yield, this is one of the better banking stocks on the TSX index, giving some of its larger competitors a serious run for their money. Its stats fall somewhere between those of the two previous bankers, though its five-year average earnings is on the lower end of the scale at 4.2%. The main reasons to buy would be a yield of 3.7% and a projected 8.3% growth in earnings.
The bottom line Canadian Western Bank may be best avoided based on a single piece of data: its beta of 1.88 relative to the TSX index. Banking stocks are arguably the best value in times of uncertainty when they display low volatility. A high beta should be a red flag to a long-term investor with a low appetite for risk. Laurentian Bank of Canada has the lowest volatility on the list, meanwhile, and pays the highest dividend yield, giving CIBC some stiff competition on all fronts.
Fool contributor Victoria Hetherington has no position in any of the stocks mentioned.
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