Canadian Imperial Bank of Commerce (TSX:CM) Disappoints Again… Time to Sell?

Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) fell short of expectations, with surging provisions. As the stock continues to tread water, should you be a buyer of the dip?

| More on:
question marks written reminders tickets

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

As a contrarian at heart, I’m always looking for opportunities to pay three quarters to get a dollar, even if it means going against the grain with some of the most out of favour stocks.

When it came to Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM), I had high hopes that the bank would pull the curtain on another round of better-than-feared results. The stock was cheap, and after revealing its fourth-quarter results, the stock became even cheaper.

I’ve been recommending CIBC while it’s traded at an even more significant discount to its peers over the past year, going as far as recommending the bank as my top pick for December.

But when CIBC managed to trip and fall on its face when attempted to hop over a bar that was already lowered to the ground for Q4, my top pick for December turned sour in a hurry. It was an embarrassing call, to say the least, but I’m not one to praise my winners and not be held accountable for my losers.

CIBC has become much cheaper after its Q4 drop, but have I changed my tune after earnings results that can only be described as abysmal?

I believe so. And I personally threw in the towel on the name post-earnings, even though I’m usually very reluctant to sell any names on the dip. Yes, the fourth-quarter numbers were that bad.

Heading into the quarter, most knew that it would be nothing to write home about. Thus, there was some allowance for provisioning (and all the sort), but not to the magnitude that CIBC delivered.

The expectation was that CIBC’s PCLs would be flat to negative, so it wasn’t a surprise that the stock sold-off violently when PCLs soared by a staggering 70% year over year.

Adjusted cash EPS fell 5% year over year to $2.84, missing the consensus estimate of $3.06, and top-line growth was just as unimpressive at just over 4% — a brutal quarter for the books.

Management guided low-single-digit earnings growth for 2020, nothing that its efficiency ratio targets are unlikely to be hit because of the tremendous industry headwinds.

Sure, you could blame the environment for this, but with names like National Bank of Canada outperforming in spite of the industry-wide pressures, I think you can only point the finger at management.

The bank isn’t just poorly structured as I initially thought; it’s abysmally structured, especially compared to some of its peers in the space.

CIBC let its guard down when it grew its loan book at a fast and furious rate in hopes of catching up to its bigger brothers, and now it’s paying the ultimate price.

CIBC may be a cheap stock, but it’s cheap for a very good reason. As credit continues to normalize, there could be further downside in the name as the loan book continues to crumble like a paper bag.

So, it’s time to move on and cut your losses.

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 Joey Frenette has no position in any of the stocks mentioned.

More on Dividend Stocks

Dividend Stocks

TFSA Dividend Income: 2 TSX Stocks to Buy on the Pullback

These TSX stocks look oversold and pay attractive dividends that continue to grow.

Read more »

oil tank at night
Dividend Stocks

1 Top TSX Energy Stocks for Summer 2022

TSX energy stocks have tanked recently, but they could enjoy a nice summer rally. Here's one top stock I'm eyeing…

Read more »

Dividend Stocks

Market Correction: 2 Cheap TSX Dividend Stocks to Buy Now for a Self-Directed RRSP

These top TSX dividend stocks look cheap right now for a self-directed RRSP focused on total returns.

Read more »

Target. Stand out from the crowd
Dividend Stocks

3 Dividend Stocks That Might Keep Pace With 7.7% Inflation

Three high-yield dividend stocks that might help investors keep pace with Canada’s 40-year-high inflation.

Read more »

value for money
Dividend Stocks

2 Canadian Stocks Trading at Unheard of Prices

Dirt-cheap stocks are a dime a dozen, but a few of them offer you a valuable opportunity, as they trade…

Read more »

Canadian energy stocks are rising with oil prices
Dividend Stocks

Is Suncor Stock a Buy Right Now?

Suncor has delivered outsized gains to investors in 2022 and might continue to do so for the rest of the…

Read more »

Canadian stocks are rising
Dividend Stocks

3 Ways to Invest in Canadian Real Estate Under $20

Real estate can be a great way to make passive income, but you certainly don't have to invest a lot…

Read more »

grow dividends
Dividend Stocks

TFSA Wealth: 2 Oversold Canadian Stocks for a Retirement Fund

These top TSX divided stocks look attractive today for TFSA investors.

Read more »