The Motley Fool

This Bank May Have the Most Upside

The big Canadian banks haven’t been this unattractive in quite a while. Analyst downgrades across the board, decaying macro conditions, short-sellers who can’t seem to stay out of the limelight, and weak loan growth that’s expected to carry on through year’s end.

The banking sector is looking incredibly bleak, but with the exception of Royal Bank of Canada, the banks have been slapped with hefty discounts. As you may be aware, the stock market is all about pricing in expectations in the future. At this juncture, where nothing but pessimism is in the air, it may be time to pounce now that most other weak-handed investors have already jumped ship in conjunction with the downgrades.

So, what are we expecting when it comes to the banks moving into the latter part of the year? More of the same. Continued slow loan growth, decaying credit, and all the sort. Although the banks may be a year or so away from credit normalization, it does make sense to pick up shares of the most battered of names on the current dip.

At this juncture, CIBC (TSX:CM)(NYSE:CM) looks to be among the most battered of the bunch. And given the excessive pessimism on the name after two abysmal quarters to start the year, it appears that analysts have lowered the bar by so much such that it won’t take much to cause a sharp upside correction to shares.

Of course, there’s always the potential for more damage to be endured over the coming quarters, but from a risk-reward standpoint, it’s looking pretty attractive for those of us who are content on collecting the dividend (currently yielding 5.4%) as they sit on the name for the next few years or so.

For now, shares are down over 16% from their highs with a fairly strong support level at $100. I’d say now is as good a time as any if you’re thinking of taking a contrarian position.

If you’re worried about the potential for accelerating credit losses as Steve Eisman warned, I’d initiate half a position now and half after the reveal of the next two quarters, which are expected to be just as ugly if not uglier than those in the first half of the year.

Going against the grain in times like these are where the real rewards lie!

Stay hungry. Stay Foolish.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

Fool contributor Joey Frenette owns shares of CANADIAN IMPERIAL BANK OF COMMERCE.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.