Banking stocks in the U.S. have held up fairly well so far in 2010, when considering the headwinds that continue to meet them head on. The Dow Jones U.S. Financial Index is flat through the first six and a half months of 2010 and is outperforming the S&P 500 by two percentage points. Across the pond in Europe the banking stocks have struggled as the Greece debt problems spread across the continent.
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So if the risk remains high for the U.S. and Europe, where do investors turn to gain exposure to banks or their portfolios? How about Canada, South America, and Emerging Markets?
Canadian Imperial Bank of Commerce (NYSE:CM) may not sound like a household name because most investors refer to it as CIBC. The company offers an array of financial services that include banking, investments, mortgages, insurance and credit cards. In mid-June the company agreed to acquire Citigroup's (NYSE:C) Canadian MasterCard division, increasing their total credit card business to over $16 billion in outstanding balances. With a forward P/E ratio of 9.8 and a dividend yield of 4.8%, CM is my favorite bank in Canada at this time.
Toronto Dominion Bank (NYSE:TD) is based in Canada, but the company is now well known in the US due to its large network of branches and ATMs. TD bought my bank over a year ago and I now have accounts with the Canadian bank in the New York area. TD has a similar P/E ratio to CM (10.2) and pays a 3.5% annual dividend, however a rising Canadian Dollar could hurt it. Because of the large exposure to the US, the company's net income could take a hit due to a strong Loonie. With that being said, CM also has currency risk, but with the US Dollar rising rapidly recently TD has more risk. (For related reading, check out Dividend Yield For The Downturn.)
BanColombia (NYSE:CIB) has been a rock star during the recent swoon in the stock market. The stock was able to attract big volume and hit a fresh all-time high in mid-June, as the world markets remained 10% off their respective highs. The company has a forward P/E ratio of 11.6 and pays a 2.6% dividend. CIB offers banking, investment, insurance and mortgage services throughout Columbia and is one of the largest private banks in the country. (For more, see Getting On The Right Side Of The P/E Trend.)
Banco de Chile (NYSE:BCH) is a banking leader in Chile that has been able to hold up well through the financial crisis as well as the earthquake that devastated the country. During the first quarter the company reported earnings that more than doubled from one year earlier, and also paid out a dividend that raised their yield to 10%. The stock has had trouble this year breaking above the $65 area, but when it finally breaks out it should run for a few months.
In February 2010 iShares introduced the iShares MSCI Emerging Markets Financials ETF (Nasdaq:EMFN). The ETF is composed of a basket of 175 stocks with an average market cap of $28.45 Billion. The most heavily weighted country is China (30%), followed by Brazil (14%) and South Africa (9%). Considering the emerging markets need financing to fund their growth, there is a good case for the emerging market financial stocks. On a side note, investors must realize EMFN does not trade many shares per day and caution must be taken when entering a buy order.
I am not suggesting investors lower their exposure to US financials to zero. However, there should be some diversification within the sector to better stabilize a well-balanced stock portfolio. (For related reading, check out Analyzing A Bank's Financial Statements.)
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