Canadian Imperial Bank of Commerce (CM.TO)

Fell off in early July on the Aero plan news and this is a headwind that they are facing. Stock has recovered along with some of the rest of the bank stocks but he would rather have his money elsewhere. Does have some of this for some of his accounts but wouldn’t buy it today.

We are coming out of a period of seasonal weakness and the next period of seasonal strength happens from September through to the end of the year. It outperforms both the S&P 500 and the TSX. Average gain from September through to the end of December is about 10%. There is resistance around $80 so you want to see that cleared.

Recently a decent run in the banks. W are right in the middle of the recent range so he would neither buy nor sell. He is neutral in the banks. Prefers life insurers.

Likes all the Cdn banks at this time. This one is probably the cheapest. Has highest ROE at about 22%. Has the highest tier 1 capital ratio of about 9.7%. Lowest valuation, trading at about 8.5X of 2014 earnings. Has the largest “Short” interest which he feels is a positive. Wouldn’t be surprised to see a split at these levels.

Best capital ratio and the lowest PE. What’s wrong? It’s Aero Gold. Aimia (AIM-T) has signed a deal with Toronto Dominion (TD-T) and this bank has the right of 1^st refusal with the deadline in early August. Stock is $7-$8 away from its 52-week high when all the others are at their highs and is strictly due to this. Approaching 10% of their earnings. Expects it gets resolved and if they do their own card, lose some business and with a 3%-5% hit, thinks it will go to $80-$81.

Has been lagging. Capital base is the strongest; they are the most profitable, but people have long memories of when they stepped into potholes, but they are a much better bank than 5 years ago. They are less exposed to capital markets than most people perceive. You are getting more profitability and paying less for it.

Losing their Aeroplan program to Toronto Dominion (TD-T) and seem to be making light of this. It has been suggested that somewhere in all the agreements, there is some kind of a poison pill. Would prefer Toronto Dominion instead but nothing wrong with this. Yield of nearly 5%.

What are your thoughts on their Canadian Bond Premium Class fund? He doesn’t like mutual bond funds and this is one of the classic examples of a typical Canadian mutual bond fund. Has a high MER. Also doesn’t like them because they never mature. You never know what your portfolio looks like from one day to the next.

100 year bond in a TFSA account. Yield of 9.98% and callable in 2019. Hold or take the capital gain? These will almost certainly be called in 2019. He would have to look at it today to compare the market price, which is probably not far from the Call value.

Model $99.31, 30% upside. 5% yield.

(A Top Pick Jan 29/13. Down 9.06%.) He is favourable to the banks again. At these levels, this bank along with Bank of Nova Scotia (BNS-T) would be the ones where he would see the most upside. Sees healthy double-digit returns over the next year.

Nice yield of 5.1%. This is not the bank that is going to be delivering growing dividends to the extent that some of the others do. They will grow at 5% or 6% versus others that may grow theirs by 8% or 9%. It depends on what type of investor you are. He generally likes the banking sector, but is not excited by it. Feels you will get a bit more push from some of the insurance companies.

The negative story with Canadian banks is that Canada is done, it’s over, it’s a saturated market in terms of personal debt, etc. and banks are going to be holding the bag when things go down. He does not believe this. Our banks are very well managed, have very high dividends, and trade at decent multiples. You are far better off with banks then you would be with utilities or pipelines.

For the last few months, Canadian banks have underperformed while US banks have outperformed. Cdn banks held up their value very well through the decline we went through in 2008-2009. However, we are now at a point where the Canadian economy appears to be slowing down a little bit. But in the US there are some improvements. US banks are cheaper than Canadian banks. If things are getting a little worse in Canada and a little better in the US, he would prefer going to a US bank. 4.9% dividend yield.

Has the highest capital of all the banks, and has retrenched on the risk side. There is a short on the Canadian banks, and long on the US banks, which will be putting pressure on the cost. This is a long term buying opportunity.