The deciding factors will be valuation, financial strength and long-term growth opportunities.
TD bank
While investors certainly once had a good reason to undervalue Toronto Dominion Bank (TSX:TD), the fact is that these value differences seem unfounded today. Yet Toronto-Dominion Bank’s stock valuation continues to fall due to the money laundering scandal, even as the bank is working to right its wrongs. TD has made changes. The country has paid its fines and continues to monitor and improve its anti-money laundering safeguards.
So right now, the valuation of TD stock seems unjustifiably cheap. And because of this, TD stock is now one of the best TSX bank stocks to buy in January. As you can see in the table below, TD shares are trading at significantly lower prices than their peers.
For example, the banking group trades at a price-to-earnings (P/E) ratio of 15.4 times. TD Bank trades at 11.2 times. Furthermore, the banking group trades at a price-to-cash flow multiple of 12.9 times. TD Bank trades at 10 times. This is despite the fact that TD’s financial performance and strength score very favorably compared to its peers.
In TD’s latest quarter, the bank reported adjusted earnings per share (EPS) of $2.18, compared to $1.72 in the same period last year. Reported profit decreased due to one-off restructuring costs. In the quarter, TD delivered strong commission and trading income, as well as volume growth in Canadian personal and commercial banking.
Shares of Toronto-Dominion Bank yield 3.31%.
Bank of Nova Scotia
While Bank of Nova Scotia (TSX:BNS) is known for its international fame, which brings additional risks and problems. Yes, certain international markets promise higher growth rates, and this is what Scotia has been aiming for. But the risk began to overwhelm the bank.
This caused the Bank of Nova Scotia to exit the risky Latin American markets, subsequently taking a huge writedown and focusing more on the safer and more reliable US market. So far this step has gone well. In 2025, the bank reported adjusted earnings per share of $7.09, up 9.6% from 2024, and well above expectations that called for earnings per share of $6.47. This outcome was driven by global banking and markets.
Today, Canada represents 48% of the bank’s revenues, and the US now represents 16%. Although the Bank of Nova Scotia has left the most volatile international regions, it also maintains a presence in higher growth regions such as the Caribbean and Mexico. The point here is that rising US profits plus the bank’s exit from the most volatile regions should effectively reduce the risk premium for the bank. This in turn is a good sign for the valuation.
Yet the bank still yields a very attractive 4.28%. In my opinion, this, together with the new and improved risk profile, is a good reason to own the shares. I consider Bank of Nova Scotia the best TSX banking stock to buy in January.
The bottom line
The two top TSX bank stocks to buy in January are both discounted due to issues that are no longer relevant. TD has made good progress in tackling the money laundering problem. Yet TD stock is still trading at a deep discount.
Similarly, the Bank of Nova Scotia has exited the high-risk, super-volatile regions that have caused it problems in the past. Today the focus is more on the US and Canada, but with continued exposure to higher growth areas. The risk associated with the stock had decreased significantly. Yet it is still the most profitable stock, with a dividend yield of 4.28%.
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