Should You Load Up on TD Bank Stock?

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Shares of TD Bank (TSX:TD) were dealt quite the heavy hit to the chin to start May, as most other banks inched higher under their own footing. Undoubtedly, investors were quite wary about the potential for money-laundering scandal penalties to add up. TD Bank set aside a chunk of cash to prepare for penalties, but some analysts out there think a worst-case scenario could weigh on growth for many years to come. They’re not wrong.

Indeed, TD Bank’s U.S. retail banking business was seen as a source of meaningful growth for the Canadian bank. Should restrictions be put in place that limit growth south of the border, it’s unclear how earnings will fare over the next five years. Perhaps TD will lose its growth lustre as peers gain relative ground.

In my opinion, the worst has already worked its way into the stock when it fell below $75 per share just a few weeks ago. Since nosediving to that level, TD Bank stock has been on the mend, now up more than 4% to around $78 per share.

After TD pays its penalties and fixes all anti-money laundering (AML) shortcomings, I think TD Bank will be right as rain again. Perhaps by then, the Canadian and U.S. economies are ready to pick up traction again as well. Of late, other Big Six Canadian banks have healed a great deal in recent months, recovering ground lost from prior declines.

With more room to gain and potential unique catalysts (think succession plans that could entail the announcement of a new chief executive officer, or CEO), I view TD Bank stock as offering a great bang for one’s buck. The dividend yield is juicy at 5.27%, and the 12.3 times trailing price-to-earnings (P/E) multiple fails to consider the bank’s long track record of navigating through all sorts of different environments.

TD Bank: Still a premier bank?

TD Bank is great at balancing risk and reward. Not much has changed on that front. As the bank bets on generative AI to save costs while bolstering AML capabilities, TD Bank may finally regain its growth edge over rivals.

Undoubtedly, in the face of uncertainty, the bank needs not only a commitment to change but a fresh face in the CEO’s office if it’s going to put the money laundering scandal behind it.

Of course, given ongoing regulatory investigations, it will be somewhat harder to court a seasoned candidate to get into that corner office over at TD. And there may be a limited applicant pool at this juncture. Perhaps once Bharat Masrani has had a chance to clean up more of the mess, a successor will be more likely to hop aboard.

The Foolish bottom line

TD Bank stock looks like a solid buy while it’s discounted relative to its banking rivals. The heavy hit of money-laundering woes will linger for quite a while. But it’s a fixable issue, and for those with five years or more to wait, perhaps TD stock is the best value bet in the banking waters right now. The stock is already bouncing back from the early May drop. Now that shares are showing signs of life, I’m more comfortable jumping in today than back then.

Perhaps future catalysts (e.g., a CEO change) and the incorporation of generative artificial intelligence could help TD Bank emerge from these ominous depths. Although not my favourite Canadian bank stock to buy right now, TD stock is in my top three for June 2024.

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Fool contributor Joey Frenette has positions in Toronto-Dominion Bank. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.