The Canadian banking sector is renowned around the world for being one of the best to invest in due to its stability and long-term growth potential. However, in 2022, all of the Big Six banks in Canada have sold off along with the market, with Canadian Imperial Bank of Commerce (TSX: CM)(NYSE: CM) falling by over 15% so far year to date.
Generally, as interest rates rise, banks can see their profitability increase. However, with worries about debt levels in Canada, a housing market correction, and a potential recession on the horizon, it’s not surprising to see banks sell off with the rest of the market.
And while all the banks have lost value this year, CIBC has had one of the worst performances, with only Bank of Nova Scotia losing more.
CIBC stock is now more than 25% off its high, and while it could be more exposed to an economic downturn, it’s still a high-quality and reliable stock that you can buy for the long haul.
But does CIBC offer value at these prices, and is it one of the best bank stocks to buy now?
Is CIBC one of the best bank stocks to buy now?
One of the most significant reasons why CIBC has underperformed its peers this year is that the bank has some of the highest exposure to the Canadian economy of all its Big Six banking peers.
In addition, the stock has a tonne of exposure to the Canadian housing market and one of the highest concentrations in uninsured Canadian mortgages, so it’s not surprising to see the stock struggle.
Even with these risks, though, CIBC is well positioned. The bank has a strong balance sheet and a common equity tier-one ratio of over 10%, putting it in good financial shape.
Furthermore, many investors will be interested to know that its dividend, which now has a yield above 5.4% after its recent selloff, still has a payout ratio below 50%.
So, even if CIBC was to see its profitability impacted in the short term, it shouldn’t threaten the dividend.
That should give investors the confidence that you can buy CIBC stock today and hold it for the long haul. However, is CIBC cheap enough to warrant an investment, and is it even one of the best bank stocks to buy now?
Does CIBC offer value at $60 a share?
As of Tuesday’s close, CIBC was in line with Scotiabank as the cheapest Big Six banks, trading at just 8.1 times its forward earnings.
For years, it’s been slightly cheaper than its peers, as the bank has been trying to increase operating performance and grow its market share. It’s still only the fifth-largest bank out of Canada’s Big Six, which controls a whopping 90% of the market.
But after working to improve consumer satisfaction ratings, repositing branches, and expanding its wealth operations, CIBC continues to build opportunities for organic growth.
Furthermore, the bank is also seeing growth from its U.S. operations, which now contribute over 20% to earnings after the acquisition of PrivateBancorp. And going forward, CIBC plans to grow its sales from the U.S. to 25% of revenue.
Therefore, with CIBC trading at just 8.1 times its forward earnings and offering a dividend yield of more than 5.4%, it’s not just the cheapest bank stock you can buy; it’s also below its historical average of roughly 10 times forward earnings, and besides during the pandemic, this is the cheapest valuation it’s traded at over the last decade.
