Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) is Canada’s smallest and cheapest bank of the Big Five. It has the lowest P/E ratio and the highest dividend yield, and many pundits believe CIBC is the biggest value play of all the Big Five. But just because the bank is the cheapest doesn’t mean that it’s the biggest value play of the five.

I’m a firm believer in Warren Buffett’s philosophy of not buying stocks simply because they’re cheap, but buying stocks because they’re of fantastic value. Buffett used to refer to stocks that were simply cheap but had no competitive advantage as “cigar butts.” Is CIBC a “cigar butt” or is there real value to be had here?

The risk of a Canadian housing collapse

There’s no question that the reason why CIBC is so cheap is because of its huge exposure to the Canadian housing market, which is a lot higher than those of its peers in the Big Five.

When taking a look at CIBC’s Canadian residential mortgage portfolio, we see that the number of mortgages is going up steadily over the last few quarters. In addition, the number of uninsured mortgages versus insured mortgages has gone up from 35% in Q3 2015 to 43% in the most recent Q3 2016. This is quite alarming, and I believe it’s the reason why CIBC has not enjoyed the nice rally that some of the other Big Five bank stocks have enjoyed recently.

While the Canadian housing market is unlikely to collapse in the same way the U.S. housing market did in 2008, it is quite possible that CIBC could take a big hit considering the loans are not properly diversified and that its large domestic exposure to the housing market could make an impact to the stock if the Canadian housing bubble decided to burst.

Not the most diversified Big Five bank, but is there still value?

There’s no question that CIBC has diversification issues compared to its peers in the Big Five, and because of this the valuation is a lot cheaper than the other banks.

CIBC currently has a P/E of 9.7 and a fat dividend yield of 4.8% at current levels, which is much better than its five-year historical average P/E of 11.1 and dividend yield of 4.6%, so by historical standards the stock does certainly look cheap.

The risk of a housing collapse is still very real, but the company has taken steps to improve its diversification by acquiring Private Bancorp, which gives CIBC the American exposure that made Toronto-Dominion Bank so resilient in times of Canadian market turmoil. I believe that CIBC is headed in the right direction, but it could take years before the acquisition offsets the current risk of a Canadian housing collapse.

Although CIBC has a dirt-cheap valuation and a P/B of just 1.8, which is lower than its five-year historical average of 2.2, I believe CIBC is still quite expensive considering the Private Bancorp acquisition will not relieve the risk of a housing collapse overnight.

For dividend investors, I would wait until the stock has a 5% dividend yield before pulling the trigger, but only you’ve got at least a five-year investment horizon.

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Fool contributor Joe Frenette has no position in any stocks mentioned.