BANK OF NOVA SCOTIA $63 - Toronto symbol BNS

BANK OF NOVA SCOTIA $63 (Toronto symbol BNS; Conservative Growth and Income Portfolios, Finance sector; Shares outstanding: 1.2 billion; Market cap: $75.6 billion; Price-to-sales ratio: 2.6; Dividend yield: 3.9%; TSINetwork Rating: Above Average; www.scotiabank.com) is Canada’s thirdlargest bank, with assets of $743.8 billion. The bank continues to profit from its November 2012 purchase of ING Direct, which offers a variety of no-fee banking services. ING has 1.9 million customers and $30 billion in deposits. Bank of Nova Scotia will soon change ING’s name to Tangerine (it has to stop using the ING brand by May 2014). The change will let this business keep using the orange colour associated with ING Direct. In its 2013 fiscal year, which ended October 31, 2013, the bank’s earnings rose 3.6%, to $6.7 billion from $6.5 billion in fiscal 2012. Due to more shares outstanding, earnings per share fell 1.3%, to $5.15 from $5.22. Without unusual items, such as a gain on a real estate sale, per-share earnings rose 10.2%, to $5.08 from $4.61. Revenue increased 8.3%, to $21.3 billion from $19.7 billion. The bank gets 34% of its revenue from its international division, which provides financial services in Latin America and Asia. This division’s revenue rose 14.4%, partly due to a gain on the sale of a business in Thailand. Without that, revenue increased 10%, thanks to acquisitions. The ING purchase increased revenue at the Canadian banking division (33% of the total) by 13.4%. Revenue from the wealth management and insurance division (18%) rose 14.0%, due to higher assets under management. Bank of Nova Scotia’s securities trading division (16%) saw its revenue rise 1.8%, as gains in Canada and Europe offset declines in the U.S. and lower commodity trading volumes. In all, the bank set aside $1.3 billion to cover bad loans in fiscal 2013, up 3.5%, due to an acquisition in Peru. Volatile currency exchange rates in emerging markets add to Bank of Nova Scotia’s risk. Still, its earnings should improve to $5.50 a share in fiscal 2014, and it trades at just 11.5 times that estimate. The $2.48 dividend yields 3.9%. Bank of Nova Scotia is a buy.

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One of the sweetest and most profitable pleasures of successful investing is to buy high-quality “value stocks” (or stocks that are reasonably priced, if not cheap, in relation to its sales, earnings or assets), then hold on to them as mainstream investors recognize the value and push up the share price.

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