Thursday, 25 February 2016

Canadian Western Bank

CWB is  smaller regional bank based in Calgary Like all Canadian banks it is a dividend growth stock with low payout ratio and solid earnings growth. The main difference that stood out to me was the historical yield was closer to 2% vs 4% for the mainstream banks. Looking at Fast Graphs below you can see it is almost as undervalued as it was in 2008  It’s been heavily penalized for its Alberta exposure. As the old saying goes in the short term the stock market is a voting machine (tending to overreact in both directions) long term it is a weighing machine. In this regard CWB is quite solid at some point the market will recognize this, the question is when. Short term we don’t know how this wil play out. If there is an earnings hit the market will over react giving patient investors an even better deal. If there is no earnings hit than I expect it to trade sideways for a while

Playing this Stock

I’m very interested in this stock and there is a ton of potential upside (see below) but I’d prefer to sit on the sidelines for a bit yet.  I did  BNS instead as it but a higher yield, and I think it will recover before CWB. So my plan is to take my profits and buy CWB before the next run up. This is no guarantee that either stock will recover they both could trade sideways for a couple of years. Either way I’m happy to collect that 5.5% dividend.

Current PE ratio 9.4 price $55
Normal PE ratio 12 price $70
Gain $15 or 27% plus dividends

Current PE ratio 7.7 price $22
Normal PE ratio 15 price $40 or 80%
Plus dividends

Note on Fastgraphs: share price above the blue line is overvalued, below is undervalued