Buy, Hold, or Sell Right Now? #CanadaFinance

Written by Andrew Walker at The Motley Fool Canada

TD Bank (TSX:TD) is up about 10% in 2025. Investors are wondering if TD stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) focused on dividends and long-term total returns.

TD trades near $84 per share at the time of writing. The stock was as low as $73 late last year but remains way off the $108 it reached in early 2022 before the bank’s share price went into a nearly three-year downturn.

Soaring interest rates and troubles with U.S. regulators provided a double hit to TD in the past few years.

The Bank of Canada and the U.S. Federal Reserve aggressively raised interest rates in 2022 and 2023 to slow down an overheated economy and get inflation under control. Rising interest rates are usually positive for financial institutions as they can enable the banks to generate better net interest margins. The speed and extent of the rate hikes, however, caused trouble for households and businesses with too much debt. This forced TD and its peers to raise provisions for credit losses.

The central banks signalled in late 2023 that they were done raising interest rates. Rate cuts started in the second half of 2024. Bank stocks broadly rallied in 2024, but TD didn’t join the fun.

Why?

Regulators in the United States fined TD more than US$3 billion and placed an asset cap on the American business as penalties for not having good systems in place to prevent money laundering. The asset cap is a big hit to TD’s growth plan, which has focused heavily on the U.S. market over the past two decades.

Gains in the share price in 2025 are likely due to a leadership change at TD. A new chief executive officer took over earlier this year and is already making big moves. TD sold its remaining interest in Charles Schwab for more than US$13 billion. The company is using $8 billion to buy back stock and will allocate the remaining funds to drive organic growth and fund other projects.

TD’s Canadian business is very profitable. The strong capital position will enable TD to compete aggressively this year and in 2026 for roughly two million Canadian mortgage holders who have to renew fixed-rate mortgages that were taken out in 2020 and 2021. Having financial flexibility is important to win attractive customers who could sign up for a wide variety of products beyond the home loan.

An extended trade war could push the American and Canadian economies into a deep recession. If unemployment spikes while interest rates are still elevated, there could be a new wave of loan defaults. This would put added pressure on TD and its peers and could send bank stocks into a new downturn.