Canadian Imperial Bank of Commerce (CM.TO)

He would recommend this at these levels. The average multiple tends to be just short of 12X earnings for the banks. The acquisition in the US was a good move. Over time, it will make investors feel more comfortable that there is some diversification out of Canada. Feels there is some room for multiple expansion. Dividend yield of 4.9%.

Probably one of the better capitalized banks, although in the last round of earnings, it fell from being at the very top tier, but it is still very well capitalized. Has a very good dividend which is approaching 5%. On a P/B basis, it is looking like one of the more reasonable priced banks. He likes the combination of a high ROE and low P/B with a prospective growing dividend stream going forward.

One of the more domestically focused Canadian banks without large US/international operations. There has been a lot of concern about the Canadian housing market and concerns over loan losses, etc., which would affect this bank a little more than some of its peers. Also, foreign investors have taken a negative view on Canadian housing. Also, a lot of people feel US banks are good value. He favours US banks over Canadian banks.

People are concerned about the size of the mortgage portfolio. Earnings growth is expected to be modest this year. 7% next year. A 9 times PE is pretty cheap, but a 7.4% free cash flow restricts dividend increases.

Seasonal strength is the end of September until the end of November. But the banks move lower as we move into September. After this dip, the seasonality takes over.

It has been a laggard for a cycle or so (30 years). They just had a better quarter. This one might go up more than the others. He thinks there is no reason not to own this one.

He does not follow the banks too closely. This one has always been the cheap bank on the street. He prefers TD-T and BNS-T much better for international operations. CM-T has almost blown it a couple of times in history.

(Market Call Minute) Not on his buy list of banks it is number 4 or 5.

The high beta Canadian bank. They have most of their expsosure to Canada. They put on the most new Canadian mortgages over the last two years. If you are confident that everything is okay then it is fine. He as a different pick in the Top Picks today.

There were a lot of Shorts between mid-July and the end of July, related to the closing of their US acquisition. This is probably the most domestic of the Canadian banks, and given all the concerns about the Canadian housing market, that has also caused problems. Dividend yield of 4.9% is a great income stream. This bank has an ability to grow, and you are not overpaying for it. He would like to get it in a bit more of a downturn.

RY-T vs. CM-T. CM-T is cheaper. The PE is 9 vs. RY-T at 12. The market and street are starting to blend in a discount to CM-T because of the housing market as they are the most exposed. He would still hang his hat on RY-T because their global and domestic franchises are fantastic. They are trying to get into the US right now although are late to the game. He would still go for RY-T because it is more defensive.

This is early days and we don’t know how their US acquisition is going to work out. It has the largest proportion of assets in mortgages, which might be a negative going into a recession if we have a real estate correction.

It is more of a case of what is going on with the Canadian central bank and what the rate increase will mean for the banks. The rate increase is positive for them. They can actually charge more for money, but won’t have to pay any more for it to customers. The prime mortgage rate went up by a quarter of a percent. CWB-T has the biggest net impact from this increase. CM-T will be impacted by rate increases in how they impact the housing market. Weakness in the industry could be an issue for them.

It has been technically been showing some interesting patterns. It broke out into a new high in the last few days. You would prefer to buy it back in the trading range. It is good between September and December of each year, but we are not into the period of seasonal strength. Stick with it if you own it.

Higher interest rates should be positive for Canadian banks. This ranks 78 out of 720 in his rankings. All the banks are basically clustered in the top 15% of his database. This may end up being the unloved child amongst the big 5, but generally speaking, a package of Canadian banks over the next few years should do fairly well. Thinks you will be happy with this over the next couple of years.