Royal Bank added to list as Strong Buy

Royal Bank of Canada has been added to our list and rated Strong Buy. It appears attractive based on a 10.7 P/E ratio, 17% ROE and 4.5% yield. Earnings per share could suffer in 2016 due to energy loan losses, the recession in Alberta and due to the additional shares issued in a recent acquisition of a U.S. wealth management division. Nevertheless, the shares are attractively priced and earnings will almost certainly grow over the years. I would caution however, that banks are always highly leveraged and Royal seems particularly highly leveraged. Banks tend to be like finely tuned instruments that make money literally every day in most economic conditions but there is a small chance of major losses in deep recession conditions or if they loaned too much to companies or sectors that go bad. For that reason, while I would definitely be comfortable holding banks I would be cautions about getting too much exposure to banks.