RY? - Because - That's Why!

There are lots of things happening in the markets - the recent run-up in North American markets have led me to suspect that we will see a few dips in the following days. Lots of value is still available, despite recent run-ups and regardless of whether I am right or wrong. As I have said so many times, opinions are worthless - its all about the facts, jack. Having said that, based on evidence and current conditions, I recommend every stock that I have mentioned so far in my blog - every single one is still a buy - many are available at attractive prices.

This week, my favorite Canadian bank reported earnings above expectations, but still managed to drop in share price. It is indeed a very strange world we live in. RBC profit jumped 19%, they hiked their dividend, and shares dropped. Makes perfect sense.

Capitalizing on market irrationality is one of my favorite investment strategies and any time a company beats expectations and raises their dividend and shares drop, your antennae should perk up. Look for the reason why. In the case of RBC, "market expectations for the bank's earnings rose on Thursday after Toronto-Dominion's profits blew past analyst expectations." Apparently, because TD blew beyond market expectations, Royal was expected too as well. Shares for Royal shot up Thursday, and went back down Friday after the earnings report, slightly higher than what they were trading at Wednesday at closing.

Check out Royal on Google Finance

I recently profiled Royal on this blog – inspectorSTOCK.com. As I said then, I like Royal because it is a boring and conservative Canadian bank and they consistently raise their dividend. Generally speaking, Canadian banks are all very safe places to invest. Canadian real-estate continues to be red-hot, unlike in the US, and thus the mortgage business is still doing well, though some of Canada's biggest subprime mortgage lenders are cutting back due to the asset-backed commercial paper market drying up. The recent US subprime crunch has left the Canadian banks largely unscathed, including Royal, which cites “minimal” exposure to U.S. subprime residential mortgage-backed securities and collateralized debt obligations. RBC chief executive Gord Nixon also cited "nominal" exposure to the previously-mentioned asset backed commercial paper market which has recently dried up in Canada.

Another reason I like the big-five Canadian banks has to do with the effect the US sub-prime crunch is going to have on the Fed's future decisions and the bond-market, and therefore, the interest rate that borrowers need to pay for their loans and mortgages. Essentially, nobody is expecting any rate hikes any time soon and some are calling for rate cuts - this ultimately leads to low interest rates. And, since alternative mortgage lending will be more and more difficult, this bodes well for the big five, as they will surely continue to dominate in the traditional mortgage market. Of course, everything could derail if credit dries up too much, but the Fed and central banks will unlikely allow this to happen without a significant battle. This is good news for the housing market in Canada. Barring any major global market disasters that has the force to ruin everybody's economy, Canada's fundamentals are solid. So, as the saying goes, shake your money-maker!

DISCLOSURE: I do not own shares of Royal Bank yet. By the time you read this though, I very well may have picked some up. Always do your own research before buying a stock. As always, tell your friends (and the enemies of your enemies) about InspectorSTOCK.com !