Canadian Imperial Bank of Commerce (CM.TO)

A $105 January Call with a strike price of $110. Collecting the dividend and the premium for the call. Good strategy? When you are using a covered call strategy like this, you are writing them a little bit out of the money. There is nothing wrong with this. You won’t get as much premium as if you had sold a smaller gap.

This has not done well now that the new acquisition of Private Bank Corp has gone through. To him this is the most interesting bank, simply because it is down the most in context to where it was relative to their $120 high. What we are seeing right now is the backflow of US holders of Private Bank Corp questioning what is this “CIBC” thing, with a natural inclination to Sell. That is actually a very good time to look at a stock. He would put new money into this today.

Trading at 9.7X while its peers trade at 11.2X, because it has a little lower growth rate, and is very tied to Canada. Just bought Private Bank Corp in the US, and there is some uncertainty as to how that does. Because they are overexposed to Canadian housing, they are trading at a discount. Dividend yield of 4.77%.

CIBC is not one of the three she owns broadly. They have been primarily domestic. It was hard to see above trend growth. They recently acquired a US bank and so we will have to see how they do. They got out of the US previously. As a group she like them as they have pulled back recently. The improving Canadian economy will be positive for Canadian banks.

In all the banks, this has participated the least over the last year or so. In valuation, it is one of the cheaper banks. You’re getting a little more of a dividend and a cheaper valuation. The big question is their US acquisition, and how that is going to play out. For a longer-term hold, this is a great buying opportunity. Yield of about 4.8%.

(A Top Pick July 15/16. Up 10%.) This has always managed to maintain a relative high capital base relative to the other banks, and has always had one of the better dividend yields. With the recent pullback, it is still a Buy.

He likes this name. In general, Canadian financials have sold off a little, so this is a pretty good time. Thinks that the time of stepping on the sharp end of the rake is over. They’ve done a really good job of becoming a retail bank.

Recently made an acquisition of a US private bank. They had to raise the price, but it was important for them to have a banking foothold in the US. Some analysts are concerned they have too much exposure to the Canadian consumer and have been growing their Canadian mortgage business a bit too fast. A well-run bank.

CIBC (CM-T) or Royal Bank (RY-T)? This is the perennial laggard of the big banks, because historically it has been so accident prone. Also, they don’t have the International areas like the other banks. This is very domestic, so you’re getting domestic exposure. Royal always has a higher premium. You have to ask if you want more domestic exposure or something with a little more US flavour.

He would recommend something else. There are better banks out there. He wouldn’t own this one. It has the most in residential mortgages. Prefers something like Toronto Dominion (TD-T) or Bank of Montréal (BMO-T) which have avenues into the US. There is also Royal Bank (RY-T) or Bank of Nova Scotia (BNS-T).

Right now, this is under some pressure. As far as the banks are concerned, he would just sit and watch a little. The charts all look indifferent. If the US Shorts continue, there could be a further decline in the bank stocks.

This is down more than the other banks because (1) they are issuing stock in the People’s Bank acquisition and (2) they have twice the exposure of any other Canadian bank to Canadian mortgages. He doesn’t own it because of their mortgages, which would make them the most exposed if there were any problems. (See Top Picks.)

Regarding their US acquisition, they’ve gone at it 3 times saying this is the last offer. The US banks rallied, and the Canadian banks did not. He hopes they don’t jump their offer once again.

Stock split? The reality is that a stock split is going to have very little impact to your long-term success in owning the shares. Also, it will make no difference to your performance. This and the National Bank (NA-T) are the cheapest on a valuation basis, and as a result they also pay the best dividends.

Relatively exposed to home loans in Canada, which is why he picked it. Americans don’t actually understand Canada’s mortgage market. Because of this, a lot of US Shorts are going after not only the alternate mortgage lenders, but primary banks and other lenders. This is also probably one of the most profitable banks in Canada. Dividend yield of 4.6%. (Analysts’ price target is $124.)