The Canadian banking sector is heading into earnings season in a bit of a rut, with shares of the Big Five essentially flat over the course of this year. The sector has been moribund through 2017, as rising rates and lower impairments in the oil and gas sector have thus far failed to stir investor sentiment.

One Bay Street money manager thinks the sector has been unduly overlooked, and could present a compelling value proposition heading into the end of the year. In an interview on BNN, Paul Gardner, partner and portfolio manager at Avenue Investment Management, said he expects a rally into the fall, as he views the sector as undervalued compared to its global peers.

“Right now, relative to bond yields and relative to other markets, the banks are on sale,” he said Tuesday. “These banks have not gone anywhere for really a year, and instead of trading at 12 times earnings, they’re trading at 10 times earnings, or two times book value. So relative to global, other banking sectors, they’re cheap.”

RBC is the first to report on Wednesday, while CIBC follows on Thursday.

Gardner said he thinks fear of a disastrous housing correction and the accompanying impairments the banks would have to book are overblown.

“We still have a sector that is so disliked, it’s not believable, especially in Canada. This is probably about the fourth time around we’ve heard, ‘Oh, there’s a housing crisis,’” he said. “You do still have shorts out there saying, ‘This is it, this is going to be the big one.’”

“I would think in the fall you’ll see a bit of a rally, just because they’ve underperformed the last nine months.”

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