Is BNS Stock a Buy?

Bank of Nova Scotia is up more than 20% in 2024. Are more gains on the way?

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Bank of Nova Scotia (TSX:BNS) just reported the fiscal fourth quarter (Q4) and full-year 2024 results that disappointed the market. Investors are wondering if the pullback in the stock on the earnings news is a good opportunity to add BNS stock to a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.

Bank of Nova Scotia share price

Bank of Nova Scotia trades near $77 per share at the time of writing. The stock is off the 12-month high near $80 but is still up more than 20% in 2025.

The bank is in a transition phase, which was launched by its new chief executive officer last year. Bank of Nova Scotia is shifting its growth strategy away from South America to focus more on Canada, the United States, and Mexico. In the past, the bank spent billions of dollars to acquire assets in Chile, Colombia, and Peru. These countries, along with Mexico, make up the core of the Pacific Alliance trade bloc that enables the free movement of goods, services, and capital among the member markets. The attraction for the bank has always been the growth potential as the middle class expands in these countries. Combined, they have a total population of more than 230 million with low bank services penetration compared to Canada.

Economic and political turbulence, however, increases risks in these markets. That’s probably the reason investors have largely preferred the other big Canadian banks for several years. The new strategy of focusing on North American opportunities is designed to boost investors’ returns.

In recent months, Bank of Nova Scotia announced a US$$2.8 billion deal to acquire a 14.9% stake in KeyCorp, a U.S. regional bank. The move gives Bank of Nova Scotia a platform to expand its American operations. Bank of Nova Scotia has also created a new executive position to oversee expansion in Quebec.

Earnings

Bank of Nova Scotia generated adjusted net income of $2.12 billion in fiscal Q4 2024 compared to $1.64 billion in the same period last year. For fiscal 2024, adjusted net income rose to $8.63 billion from $8.36 billion in 2023. Return on equity dipped slightly to 11.3% from 11.6%. Overall, the Q4 and full-year results are solid. Bank of Nova Scotia continues to maintain a strong capital position with a common equity tier-one (CET1) ratio of 13.1%. This gives the bank financial flexibility to ride out turbulence in the markets or to make additional acquisitions.

The bank took a $430 million charge in the quarter related to a previous investment in China. Bank of Nova Scotia also reported fiscal Q4 provisions for credit losses (PCL) of $1.03 billion compared to $1.05 billion in the same period last year. Investors might have been hoping for a drop in PCL, given the cuts to interest rates in Canada and the United States in recent months. For fiscal 2024, PCL was $4.05 billion compared to $3.42 billion in 2023. The elevated PCL suggests that customers with too much debt are still struggling despite the decline in interest rates in the second half of this year.

Risks

High interest rates remain a headwind for the banks. Inflation rose in October in Canada and the U.S. after a steady decline over the past year. If the Trump administration moves ahead with planned tariffs next year, inflation in the U.S. could surge, potentially forcing the central bank to put rate cuts on hold. Tariffs would also put pressure on the Canadian economy.

If the central banks are forced to slow down planned rate cuts or start to raise rates again, Bank of Nova Scotia and its peers might see defaults start to increase next year.

Should you buy the dip?

BNS stock is due for a pullback after the big gains this year. Given the uncertain outlook over the coming months, it might be best to wait for earnings reports from the other large Canadian banks to get a sense of where they see things headed in 2025. A better entry point might be on the horizon.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool recommends Bank Of Nova Scotia. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker has no position in any stock mentioned.

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