Down 20% This Stock Is Primed to Soar in 2025 and Beyond

TD Bank is currently trading near $86 per share, down 20% from its 2022 high of $108. Despite a dip to $74 earlier this summer, the stock has shown signs of recovery. Investors who missed the recent rally are now questioning whether TD is still undervalued and a good buy for a dividend-focused portfolio.

Recent Stock Performance

The recovery since June aligns with rate cuts from the Bank of Canada and recent cuts in the United States. With inflation stabilizing, central banks have room to ease rates further, potentially reducing the risk of a recession. Normally, falling interest rates could harm banks by squeezing net interest margins, but the market now anticipates lower loan defaults, which could positively impact TD’s provisions for credit losses (PCL) heading into 2025.

Regulatory Challenges

TD’s share price remains under pressure due to ongoing regulatory investigations in the U.S. regarding anti-money-laundering practices. Having invested significantly in U.S. retail banking, TD has set aside over US$3 billion to cover potential fines. While these challenges hinder growth plans, they are expected to resolve eventually, allowing TD to focus on expansion in the American market.

Down 20% This Stock Is Primed to Soar in 2025 and Beyond

Investment Opportunities

Once regulatory issues are settled, TD can refocus on growth, potentially boosting stock prices significantly. The bank remains profitable and has a strong capital position, which positions it well to navigate current headwinds. Additionally, the appointment of a new CEO next year could provide a fresh strategic direction.

Risks to Consider

However, analysts warn of potential restrictions on TD’s U.S. expansion as part of regulatory resolutions. Broader market pullbacks, rising unemployment, and inflation concerns also pose risks. Should economic conditions worsen, TD might revisit 2024 lows.

Should You Buy TD Now?

Despite near-term uncertainties, TD presents a compelling opportunity for buy-and-hold investors. The current share price offers a robust 4.8% dividend yield. For those wary of immediate risks, taking a half position now and looking to add on weakness may be prudent. Historically, investing in TD during pullbacks has proven beneficial for patient investors.

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In summary, while challenges remain, TD Bank’s solid fundamentals and potential for growth in the U.S. market make it an attractive option for dividend-seeking investors.

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