Bank stocks have been pummeled since the credit crunch began. However, this week has been marked by huge gains for the industry as a whole. While many investors believe this is an excellent buying opportunity for U.S. banks, we would like to shed light on a Canadian bank which trades on the NYSE, that might outpace the overall industry in the next six months. It is the Royal Bank of Canada (RY).

The chart above illustrates that based on the return on assets ratio (ROA), RY has recently been much more profitable than the overall industry in the past year. This is likely due to fact that Canadian banks have not had to write down as many assets as U.S. banks, given the housing bubble is not as severe in Canada as it is in the U.S., nor are there as many “risky” loans on Canadian bank balance sheets. However, based on dividend yields RY’s stronger profitability has yet to be priced in, i.e. RY has a much higher dividend yield than the overall banking industry (see chart below), which makes it an attractive buying opportunity.

The above analysis confirms our ranking system’s Strong Buy recommendation for the Royal Bank of Canada.

In terms of technicals, RY is on the verge of breaking above a key technical level and if attained this could be very bullish (see chart below).

Happy trading.

Disclosure: No positions at the time of writing.

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