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Canadian Financials Remain Low Valued, Signature Select Makes 3 Top Holdings
Posted by: Holly LaFon (IP Logged)
Date: July 3, 2013 11:59AM
The Signature Select Canadian Fund is a new fund followed by GuruFocus as part of its global coverage. The fund has $2.2 billion in assets under management and has returned 9.45% on average since inception in May 1998 investing primarily in Canadian companies across a range of sectors.
According to Signature’s first quarter letter, the team, led by Chief Investment Officer Eric Bushnell, were predicting a global financial recovery slower than historical economic recoveries due to “deleveraging and fiscal restraint.” Fed policies were also expected to turn investors to global equities.
Signature has a 47.5% geographic weighting in Canada, and its top investments are all Canadian banks trading near notably low valuation ratios: Toronto-Dominion Bank (TSX:TD), Canadian Imperial Bank of Commerce (TSX:CM) and Royal Bank of Canada (TSX:RY).
Toronto-Dominion Bank (TSX:TD)
The largest holding of the fund, Toronto-Dominion Bank, comprises 7.5% of the equity portfolio, at 1,246,100 shares. Signature opened the position in the first quarter of 2013 when the price was $84 per share on average. It has traded the stock numerous times in the past:
Wednesday the stock is $84.75 per share and the company has a $77.53 billion market cap.
TD Bank it a top-10 North American bank headquartered in Toronto with 22 million customers and CDN$826 billion in assets.
In the past five years, TD Bank grew revenue per share an average annual rate of 7.1%, EBITDA at 11.6% and book value at 6.4%.
While the company’s price is close to a 10-year high, its P/E ratio and P/B ratio are both to their lowest points in a year. The dividend yield of the bank is 3.62%, which is close to a three-year high.
The Peter Lynch chart denotes that it is undervalued:
Canadian Imperial Bank of Commerce (TSX:CM)
Signature holds 894,120 shares of Canadian Imperial Bank of Commerce which it bought in the first quarter at an average price of $83 per share. Like TD Bank, it has traded the stock for several years:
Canadian Imperial Bank of Commerce trades at $74.62 at midday Wednesday and has a $30.12 billion market cap.
Toronto-headquartered CIBC has $292.4 billion in total assets and is divided into three segments: retail and business banking, wealth management and wholesale banking.
CIBC has a five-year revenue per share growth rate of 27.6%, and a five-year book value growth rate of 7%. It has also been increasing its net income every year since 2008.
This bank is also trading at notably low valuation ratios. Its P/E is near its five-year low mark, P/B is near its three-year low mark and P/S is near its five-year low. It pays a 5.07% dividend yield.
It is undervalued according to the Peter Lynch chart:
Royal Bank of Canada (TSX:RY)
Signature bought 801,050 shares of Royal Bank of Canada in the first quarter when the price was $62 per share on average. The holding is 3.5% of the portfolio, and they have bought and sold shares for several years:
On Wednesday the company’s share price is $60.93 per share and its market cap is $88.25 billion.
Royal Bank of Canada is Canada’s largest bank by assets and market cap, and serves 15 million clients in Canada, the U.S. and 49 other countries. It is divided into five business segments: personal and commercial banking, wealth management, investor and Treasury services, capital markets and insurance. Its assets under management amount to $837.6 billion.
Royal Bank has five-year per-share growth rates of 1.8% for revenue, 4.9% for EBITDA and 6% for book value.
While the share price of the bank has climbed to its 10-year high, and its P/S ratio is also near a five-year high, its P/E ratio is at a three-year low and P/B ratio at a one-year low. The 3.94% dividend yield of Royal Bank is near a three-year low.
To see more Signature Select Canadian Fund holdings, go to its portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Signature Select Canadian Fund.
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Guru Discussed: Signature Select Canadian Fund: Current Portfolio, Stock Picks
Stocks Discussed: TSX:TD, TSX:CM, TSX:RY,