Banks Can Handle a Slowdown

Article Excerpt

Investors have generally under-estimated the big five Canadian bank stocks for at least the past 33 years, which is when I started paying attention to them. As a result, the banks have been among the market’s top long-term performers throughout that period, while staying reasonably priced in relation to earnings and dividends. That’s a highly attractive combination. Banks do go through deep setbacks from time to time. But that’s a risk with any stock. The difference is that the banks play a central role in Canada’s economy. When economic setbacks end, they go on to thrive anew and outdo their previous successes. North America economic growth could fall from 3% in 2006 to 2.5% in 2007. That could hurt loan demand and raise loan defaults. But the banks have strengthened their loan portfolios in the past few years, and are doing a better job of controlling costs. We feel every Canadian investor should aim to own at least two bank stocks. We like…

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