Canadian Imperial Bank of Commerce (CM.TO)

Not keen on Canadian banks. A cyclical business. Housing doesn’t go up forever, and consumers cannot continue to add more leverage to their personal balance sheets indefinitely. ROE’s are absolutely critical for banks, and he sees more value in the US. Believes that the many factors that have been tailwinds for banks are going to become more difficult over time. Management teams are focusing on costs and cutting more aggressively, because they recognize they are not in a high revenue growth environment anymore. Your 4.7% dividend is safe.

He tends to find that banks move lockstep with one another in his ranking process. Right now they are just in to the 2^nd decile in his ranking systems. When they sell off, that is always a great time to buy them.

Oil exposure? Feels exposure amongst all the Canadian banks is quite similar and is quite limited. The bigger issue is their exposure to Alberta. This bank has a relatively new CEO with a focus on the Canadian market. Prefers Toronto Dominion (TD-T), Bank of Nova Scotia (BNS-T), and to a lesser degree Royal (RY-T).

(Top Pick Jul 31/15, Up 8.36%) It is probably the closest thing to a true domestic bank. It was out of favour. 4.8% yield presently.

This has had the strongest result of any of the banks. EPS was up 8% year-over-year on Q1. Their credit quality is excellent. Very good cost control. There are issues on their energy book. Also, cheaper than the rest of the Canadian banks. Sees this as growing at only 1.2% over the next couple of years. You could buy this at lower levels, but is certainly one you could keep your eye on.

One of the primary banks he owns. At one time it was the one in trouble, but management has really changed it and de-risked it. It has one of the best capital bases in the business and the highest return on equity. Longer term he really likes it. There are domestic headwinds as they have become much more of a Canadian one. But he thinks they will continue to grow.

Bank of Nova Scotia (BNS-T) or CIBC (CM-T) for a long-term hold? Prefers Toronto Dominion (TD-T) because 50% or more of its branches are in the US, and he likes the upside of the US growing more rapidly than Canada. As a minimum for banks, he would own one Canadian and one American. Wait for their earnings and see how they do.

Canadian Banks have been the massive outperformers over the last 5 years. All banks have been saying that exposure to the oil/gas sector has been minimal, but they will be taking write-downs. Household debt is at an all-time high. There are a lot of negative headwinds coming. He prefers TD (TD-T) and Royal (RY-T). If you are going to be in this sector, he would want to be in the best and the most conservative with regards to the Canadian consumer. Has shaved down some of his banking positions in the last 6 weeks. In the long-term, you are not going to really get hurt, because they are good managers of their business.

Which 2 Canadian banks would you buy now? Has been adding Bank of Nova Scotia (BNS-T) and CIBC (CM-T). Thinks Canadian banks are reflecting a somewhat worst-case scenario. Valuations are probably getting down to 2008-2009 levels, and he does not think the outlook is nearly as dire. Earnings start coming out next week, so we’ll see.

CM-T vs. NA-T. CM-T has better value. Is concerned about NA-T’s exposure to the oil patch. CM-T has concentrated more on the retail customer. He does not think we have seen all of the repercussions of low oil prices. The US banks are cheaper, but the currency is more expensive and you get the dividend tax credit on Canadian banks.

Most US funds are Short Canadian banks. Pays a good dividend and is trading at 1.7X Book and 10X earnings. Doesn’t feel the banks are overly expensive. Canadian banks have had very low loan losses on the commercial side. With Alberta’s problems you may see more bankruptcies, and loan losses may pick up on the commercial side. This is what you have to watch for in the next couple of quarters.

Has the best tier 1 capital ratio. Made a commitment towards growth by cost cutting. This has been out of favour for a long time. Banks tend to run in cycles. Dividend yield of 4.96%.

(Market Call Minute.) Had a pretty big correction and is looking pretty cheap right now.

ZEB-T gives you an overview of the top six banks. They are strong from August until end of November and then they are not so good. The sector does not look good now, but from March until May it has a second period of seasonal strength.

Took a half position in this in October. Banks in general appeared to be breaking out, but now they are breaking down again. This has been the worse of his bank performers. He suspects that if we get a rally into the end of the year and the 1^st week of January, the banks will move with them, but he will be selling out of both of his Canadian bank holdings in the new year on any type of a rally.