Canadian Imperial Bank of Commerce (CM.TO)

They were downgraded because of worries in the housing markets. The risks are that they are predominantly the Canadian housing lender and winning market share from peers. They have reinvented themselves. There are also concerns about the Canadian housing market. Multiples for all the Canadian banks are low in absolute terms, but high is historical terms. They might grow in terms of dividend growth, but may have headwinds that their peers who are in the US don’t have as much.

At over $100 a share, this is ripe to split.

Banks have a seasonal peak right around December. The positive thing from a technical perspective, is that this has broken out, and is now trying to pull back to the breakout point. That is all very healthy. It probably won’t have the same kind of lift that it had this month.

CIBC or another Canadian bank?Canadian banks have had a fantastic year. The 6 have basically been responsible for half, if not more, of the total gains on the TSX this year. As a group, they have returned roughly 30% this year. The issue with the banks is that they are now trading above their historical multiples, particularly because in the last few months, they’ve had a big increase along with the US financials, on expectations that net interest margins are going to expand. If there is further deterioration on Canadian fundamentals, this is the most domestically focused bank. Royal (RY-T) is probably a better name to go with.

Canadian Banks travel together. As a herd, there are leaders and there are laggards, and this one has been a laggard over the last few years. They all look pretty good, but not as cheap as they were a couple of months ago. This bank continues to increase its yield.

Just had a really good number. EPS was up 10% year-over-year. Had great operating leverage, a very favourable credit quality. He likes the banks as a group, and doesn’t understand why they are trading at 12 when pipelines are trading at 20. They’re trying to make an acquisition, which they are going to have to pay a little more for, so that might hold the stock down a little. Trades at a discount because it is very Canadian focused, and he only models about 4.4% EPS over the next couple of years. Dividend yield of 4.4%.

The acquisition of Private Bank Corp. in Chicago was postponed for 3 years. This is a strategically important deal for them, and they will likely raise the offer to get it done. The issue with this bank is the overreliance on the domestic residential mortgage market, which could be a problem down the road.

Take some profits now? The banks have had a good run, and probably moving more into market performers. If you want some yield, potential growth and diversify into buying a telecom or pipeline, this might be a time, especially if you are overweight.

This has a nice dividend yield, and they have the ability to raise that. He likes it because they haven’t gone out and made huge bets in Latin America, US markets, etc. They have a very good discipline of returning capital.

Looking at the big 5 banks, this is the least expensive, trading at around 10.5X earnings. Valuation wise it is attractive. One concern he has is their large acquisition of Private Bank Corp in Chicago. As a result of the acquisition, earnings in the 1^st year are actually going to fall, so it is a non-accretive acquisition. They are going to see benefits in year 3. Good dividend of over 4.5%.

It is trading cheaper than RY-T and TD-T. He prefers TD-T, however. The US story is a big deal and a game changer.

Valuation wise, this is probably the cheapest of the banks right now. The US acquisition they did is going to negatively impact earnings for the next couple of quarters. That may cause it to underperform the group to a large degree. They also have the biggest consumer exposure out of all the Canadian banks. If you are worried about the Canadian housing market and the Canadian high consumer debt, you are going to be a little bit more cautious on this, despite its cheaper valuation. This would not be his top pick in financials.

This has had a very good year. She thinks they beat expectations every quarter. She generally doesn’t own a lot of banks, because they are not growth names. There is nothing wrong with this bank.

Canadian banks this year have all had similar performances, except Bank of Nova Scotia (BNS-T) which has really rocketed up having been beaten up so much in 2015. Until recently, this has been very Canada centric and dependent on the Canadian consumer/economy, because it didn’t have operations outside of Canada. Recently did a large acquisition in the US. This is not a slam-dunk as the US market is very competitive.

You can own banks generally any time, and are never going to get into too much trouble. The valuation has come down a little. It pays the highest dividend in the group. As an income investor, this is probably a good place to be. If looking for more growth, you could get BNS (BNS-T) or Royal (RY-T). He doesn’t see this area performing as well as last year; perhaps the dividend yield plus 3% or 4%, for a total return of 8%-9%.