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Is It Time for Investors to Reconsider CIBC (TSX:CM) Stock?

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Over the past decade, the Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) has gotten a bad reputation. After floundering in the late 2000s financial crisis, its stock delivered tepid returns until more recently becoming a target of short sellers.

The bias against CIBC has gotten so widespread that some have even begun to speak of a “CIBC stigma,” — a knee-jerk reaction leading to an absolute refusal to buy CM shares.

But is all of this really justified?

As one of Canada’s cheapest bank stocks, CIBC has a dividend yield (5.4%) that would be the envy of its big six peers. Additionally, the stock is perfectly positioned to pick up if the Canadian economy begins to turn around–which may well be happening.

As you’re about to see, there are some encouraging trends taking place pointing to a rebound in Canada’s economic growth, and by proxy bank stocks like CIBC. The first has to do with the housing market.

The housing market is picking up

The Canadian housing market got off to a weak start in 2019, with slowing mortgage growth and declining home sales–especially in Vancouver. Although Vancouver home prices are still tanking, the rest of the country’s housing is picking up: nationwide, home prices bounced back in May, while in Toronto, new sales rose 10%.

CIBC stands to benefit from any nation-wide increase in new home sales. As a highly domestic-focused bank, a large percentage of its money comes from Canadian mortgages, so a booming housing market will help it.

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Slow growth is better than no growth

One of the main reasons investors have been shying away from CIBC is because of its tepid growth. In its most recent quarter, it grew at just 2% year-over-year, which doesn’t inspire to say the least. In Q1, the bank’s revenue and earnings actually declined, but almost all Canadian banks stumbled last winter.

Taking that out of the equation, CIBC is growing enough to keep paying its juicy dividend, although investors might not see too many big increases in the payout.

U.S. business chugging along

A major strong point for CIBC is its U.S. commercial and wealth management business. In Q2, it reached $163 million, up 18% from the same period a year before; even in the otherwise-terrible Q1, this business unit managed to grow at 24%. Although CIBC’s U.S. operations are fairly small as a percentage of total revenue, they could get larger if recent growth rates persist.

Make no mistake: CIBC is does not have the kind of U.S. exposure you’d get with TD Bank, but at 15% of earnings, its U.S. operations aren’t negligible. In fact, if they continue growing at the rate they have been, they may be enough to drive stronger bottom-line growth for the company.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button owns shares of TORONTO-DOMINION BANK.

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