What has seemingly become a perennial value stock to be included in any discussion about where pockets of value exists in the Canadian market, Canadian Imperial Bank of Commerce (CIBC) (TSX:CM)(NYSE:CM) certainly deserves consideration as a value play.
Perpetually holding one of the cheapest valuation multiples among its peers, CIBC has continually been viewed as the ugly duckling of Canada’s "Big Five" banks for a few reasons, which are valid in my books.
Perhaps the most valid and pertinent knock against CIBC has been its high level of exposure to the Canadian consumer, both in the form of residential loans as well as credit lines tied to household equity. We have yet to see a major housing correction in Canada, due in to part to extremely accommodative monetary policy action by the bank friendly Bank of Canada.
However, the risk of a serious downturn in this extremely important sector for the Canadian economy would disproportionately affect CIBC relative to its peers.
The company’s high levels of corporate lending to sectors which may be under financial duress as a result of the COVID-19 pandemic have been reflected in the lender’s recent provisions for credit losses which have been the focal point of investors since the most recent earnings release a few weeks ago. If you're bullish on a U-shaped recovery, CIBC could be a great value pick today, however, serious downside risks persist.
Invest wisely, my friends.
