Bank stocks are generally in turmoil following the historic collapse of regional U.S. bank Silicon Valley Bank (SVB). In-the-know insiders could be flocking to buy beaten-down undervalued bank stocks. Following a 10% drop in Canadian Imperial Bank of Commerce (TSX:CM) (fondly known as CIBC) stock since the week of SVB’s collapse, the bank’s Chief Executive Officer Victor George Dodig bought $2 million worth of CIBC stock between March 10 and March 16, 2023, on the public market – and it wasn’t just him.
Victor acquired a total of 86,440 shares in CIBC stock worth $2,009,102.50. The latest buys increased his common share stake by 84.8%. Two more insiders acquired CM stock during the week. Directors Mary Maher and Katharine Stevenson respectively acquired 1,300 and 1,600 shares each on March 13. Katharine allocated the newly acquired undervalued shares directly into retirement savings accounts.
The CEO and his directors have used personal funds to buy their employer’s stock. These insiders usually have a deeper understanding of the bank’s asset position, asset quality, and deposit and withdrawal conditions. They are smart, and they have put their money in the market in the belief that CIBC stock is undervalued at current beaten-down prices. They seem to have confidence in the bank’s long-term outlook, just as some smart money managers did during the past three months.
Smart money buying CIBC stock
Prior to recent insider purchases, institutional investors, especially hedge funds with deep pockets (who spend millions of dollars on equity research and analysis) recently acquired CIBC stock. These included Hamilton Capital Partners, which raised its position on CIBC to 7.4% of its portfolio by January 30, 2023. Another hedge-fund Renaissance Technologies recently increased its holdings in the big-five Canadian bank by 74% during the fourth quarter of 2022.
Is CIBC stock undervalued?
Post the recent drop, CIBC stock trades at a depressed book value multiple of 1.1 times, which is far below its five-year average multiple of 1.4. The average includes the recession lows of 2020 as the COVID-19 pandemic ravaged the stock market. A forward price-to-earnings (PE) multiple on the bank stock of 8.1 doesn’t seem expensive either.
With the collapse of SVB, CIBC could be one of the favourite Canadian banks to take over the failed tech-sector lender’s book. CIBC is one of Canada’s three banks with a dedicated technology lending group. Others include the Royal Bank of Canada and Bank of Montreal. The business could only grow post SVB’s demise.
At 5.94%, the annualized dividend yield on CIBC stock is approaching the highest it has been in 10 years. The yield briefly touched and exceeded the 7% mark during the 2020 market volatility, and it has only been higher during severe crisis times, including during the 2008–9 global financial crisis that mainly impacted banks.
Should you buy?
Investors may follow the smart money and buy CIBC stock as a long-term holding and lock in a near 6% dividend yield while waiting for valuations to recover. CIBC has raised its quarterly dividend for 12 consecutive years now, and management could follow through with that shareholder-friendly policy for many more years to come. Investors should make more passive income on CIBC stock going forward.
Most noteworthy, CIBC remains a profitable bank stock that should be relatively immune to the regional bank fallout in the United States. Unlike SVB, CIBC’s depositor base remains calm, and its client base is well-diversified.
A recent 77% year-over-year drop in net earnings during the past quarter should be temporary since it was largely a result of one-time charges and higher provisions, including the 15% Canada Recovery Dividend and litigation-related provisions. CIBC stock price could easily rebound once the challenges of 2023 are over.