Canadian Imperial Bank of Commerce (CM.TO)

From a valuation metric, this would look like a certain Buy. It has the cheapest valuation for a bank. Trading at 11.5X earnings. High dividend yield of about 7.5%. In the last 8 quarters, they have beaten on earnings and on revenue. There is the acquisition of the US bank which they had to pay up for. They are going to have to issue equity, which may cause some near-term weakness. Also, it is the least geographical diverse Canadian bank and is the most reliant on the Canadian consumer.

His problem with this bank is that it has an OK retail franchise, an OK investment banking franchise, and they paid a lot of money to buy a bank in Chicago. He prefers Toronto Dominion (TD-T) and Royal (RY-T).

She likes the Canadian banks. They’ve had a great run in 2016, but we are not likely to see the gains we saw last year. She is expecting more moderate earnings per share growth and share price appreciation, because valuation levels now are kind of trading at a bit below the Price to BV, but on a forward PE basis they are trading at a premium to historical averages, but still reasonable. This is more domestically oriented than the others. Hasn’t been that successful expanding outside of Canada in the past. Prefers the banks that have more exposure in the US and outside of Canada. (See Top Picks.)

Buying a US bank is a good deal for them. He doesn’t usually own many bank stocks. They have very low volatility, good ROEs and a good yield. People get too focused on what price they split at. Buy an odd lot if you want to.

It was expected they would have to bump their bid. The stock went down because there was an arb part. It is an attractive asset. A lot of investors negatively view their stepping up their mortgage loans and especially out West. When they close this acquisition they may get a re-valuation. They may have bought themselves some growth. It is a long term attractive story.

He owns all the Canadian banks and likes that they are able to grow their dividends. Their capital ratios are improving. Being more of a domestic bank that some of the others, this has done very, very well. Dividend yield of 4.3%.

It is always a good time to get into Canadian banks, because it is such a good business model. The last quarter was very good all the banks, and this one did particularly well with the domestic mortgage growth, etc. A lot of their growth comes from the mortgage side, which is benefiting from the strong housing market. This pays a good dividend and has a reasonable growth. After the strong run they’ve had, it might be a time to wait before getting in.

Doesn’t own any Canadian bank. Every stock he owns has to be attractive on an absolute basis. If there were incredibly low values on the banks, he would be interested. Looking at them today, he does not think their price is at a point where he has a positive enough risk/return skew.

Stock split? The banks unwritten rule is that if a stock goes above $100, the stock will be split so it will be more palatable. Whether there is a split or not, it is still the same company, so valuation on the big picture is not changed. The chart looks bullish. The old highs, set in 2014, have been bridged and it is making new highs. Everything looks pretty good.

Stock split? There is nothing out there that says they are going to do a split, but historically, when their stock becomes very pricey i.e. over $100, they tend to do a split. We are starting to see a lot of bank stocks getting to the $100 type level. It makes it easier for investors to buy stocks, but they are still buying the same stock.

Metrics look good relative to the other banks. However, it is cheaper for a reason. At current levels, he feels it is as attractive as the other banks. On the positive side, they have taken the tack of increasing payout ratios, which means a higher dividend yield and more dividend increases. More domestically focused than the others.

Room to run or Sell? This has broken through its lid, which is very significant technically. If the stock has a breakout and there is volume, that is a good sign, and there is no reason to Sell right now. It looks technically healthy.

He owns almost all the banks. This is the domestic bank of choice. He likes it and owns it. The dividends are coming down to the sub-4.5 levels and you can get safer dividends at this level elsewhere. It had a great run. Don’t sell it. People are weary of the Canadian exposure.

Split? He also wonders when they might split. $111 is a large number for a single share, but if they split, you still own the same company for the same total capitalization. He likes this bank because they have consistently had a fairly high ROE for the last number of years, relative to the other banks, and yet they sell at a fairly reasonable price. It carries a dividend that gives it one of the highest dividend yields in the sector. A split would make it easier for more retail investors to participate.

Gives the best dividend, but the cheapest valuation. However, when comparing to other Canadian banks, the others are much less Canadian banks than they where 3-5 years ago. That landscape has yet to change for this bank. The market is telling you that it is not willing to place the same multiple, given that it is very Canadian centric only. He feels the Canadian economy is going to struggle for 3-5 years.