** This article contains contributions from Stocktrades and Seeking Alpha contributor Mathieu Litalien**
It’s been a crazy December for both Canada and the United States in terms of stock market volatility. The Dow Jones went from a 25826 high at the start of December to a 21792 low on Christmas eve. If you’re primarily a growth investor, chances are your portfolio has taken a hit.
During times of high market volatility, it’s crucial you have a portfolio that can withstand hardships. The best way to do this is to invest in one of the most secure sectors in the world, and that is the Canadian financial market. These 5 financial stocks are all poised for excellent 2019’s, and if you don’t have them in your portfolio already, you should at least consider adding them.
I would consider GoEasy not only one of the best financial stocks to own on the TSX today, but one of the best stocks to own period. The stock has taken a nosedive as of late, from highs of $54 back in September to lows of $31 just before Christmas. GoEasy is in an excellent position to continue to grow their customer base due to strict mortgage and loan regulations being enforced by the banks. Alternative lenders often act as a sort of middle ground for people who cannot get approved by large financial institutions due to extremely tight lending rules.
In terms of earnings, the company has developed a reputation for consistent growth. Their most recent earnings report marked the 34th consecutive quarter of same store sales growth and 69th quarter of positive net income. Their consumer loan profile is extremely strong, so much so it has allowed the company to increase its total assets by 62.8% year over year. The growth in their EasyFinancial department looks extremely promising, as the company saw an increase of 42.1% in their loan book per branch.
If you’re looking for more exposure to the Canadian financial sector and are willing to take a little more risk by going outside of the Canadian Big 5, GoEasy may be an excellent option for you. Analysts are expecting huge growth from the company in 2019, and out of the 360 stocks we rank here at Stocktrades.ca, GoEasy is among the best.
Equitable Group Inc.
Equitable Group is another strong financial stock that provides a rare triple threat of income, growth and value. Equitable is a Canadian Dividend Aristocrat, and has a long track record of consistently growing both sales and earnings. The company isn’t projected to have blowout growth numbers for 2019 like GoEasy, but the fact this alternative lender is able to provide such consistent growth, all while delivering a 1.87% dividend yield is impressive. Their payout ratio is ridiculously low at 10.87%, so there is a ton of room for this dividend to grow in the future.
In terms of recent earnings, Equitable had a blowout third quarter, which is the primary reason it landed on our buy list as one of the top stocks to buy. Earnings have climbed over 27% year over year and the companies return on equity was up 150 basis points to 15.9%. The company raised its dividend for the third time this year, and earnings per share beat analyst estimates by $0.25.
There is a lot of negativity surrounding alternative lenders, and it’s very easy to simply avoid them because of this. But the proof is in the pudding, and companies like GoEasy and Equitable group are being overlooked simply because of their business models, which have proven to be extremely profitable. This has provided some amazing entry points price wise, and Equitable group scores perfect in our valuation grades, indicating the stock is cheap.
The Canadian Big 5 banks have been struggling thus far in 2018, and it’s left investors with an opportunity to get in relatively cheap. The Bank Of Nova Scotia has lost about 10% of its value since September, and this has made an investment in the Canadian bank a bargain. With a dividend yield of 4.91% and a payout ratio of only 48.09%, there is plenty of room for the dividend to grow. In comparison to the other big banks, Scotiabank has one of the lowest P/E multiples, coming in at a forward P/E of only 8.62.
In terms of earnings, the company had a somewhat disappointing quarter. The bank missed both EPS and revenue estimates by very small margins. The company is confident in their ability to meet growth guidance for 2019, and with a one year target estimate of just over $84, analysts predict 23.5% upside by the end of 2019. This, coupled with their near 5% dividend yield, provides an excellent opportunity for investors looking for a combination of both safety and growth.
Canada’s Big 5 have proven time and time again they can perform in and recover quickly from financial turmoil. With the markets tanking in December, Scotiabank is a stock you definitely need to have a look at if you’re lacking exposure to the Canadian financial sector.
Intact Financial has experienced some rapid growth over the last 5 years. In fact, the company has experienced double digit growth for 5 straight years. With a company that primarily deals in property and casualty insurance, it’s important not to look at short term results on a quarter to quarter basis, but more so long term returns. Why? Well, companies with high exposure to P&C policies are prone to heavily fluctuating earnings due to something like a catastrophic event such as a fire or flood.
Intact posted earnings that beat analyst predictions in both earnings and revenue. EPS of $1.62 beat by a penny, and revenues of $2.41 billion topped estimates by $28 million. Intact saw an increase of 6% to their book value and managed to lower its debt to equity ratio to 21.7%. The company is poised for strong growth in 2019, and we’re likely to see Intact maintain it’s double digit growth streak. Analysts have placed a one year target of $114.29 on the company, and they currently score 4 stars or higher in all of our valuation grades.
To Sum It Up
Canadian financial stocks, especially the Big 5 banks, have the potential to provide investors with excellent returns in both stock appreciation and dividends. During market instability, these stocks tend to perform better and the dividends are in no risk of getting cut anytime soon.
In terms of the alternative lenders such as EQB and GSY, you run a little more risk for the chance of substantially higher returns. But, these companies are still somewhat small and as the alternative lending sector loses it’s stigma and continues to grow due to tighter regulations in the banking sector, we could see some significant growth out of these companies.