1 Undervalued Stock That Smart Investors Are Buying in 2023

Insiders recently loaded up on CIBC stock. You may want to buy the beaten-up Canadian bank stock, too.

| More on:

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.

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 Brian Paradza has no positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Bank Stocks

Retirees sip their morning coffee outside.
Bank Stocks

This Monthly Income Machine Yields 6.6% and Looks Like a Steal!

Monthly pay dividend stocks like First National Financial (TSX:FN) often have high yields.

Read more »

Bank Stocks

1 Magnificent Blue-Chip Stock Down 10% to Buy and Hold Forever

Here's why Bank of Nova Scotia (TSX:BNS) looks like a fantastic buy and hold opportunity for long-term investors right now.

Read more »

Paper Canadian currency of various denominations
Bank Stocks

Is Scotiabank Stock a Buy Before May 27?

With the next earnings just around the corner, here’s what investors should know about Scotiabank’s (TSX:BNS) recent run and future…

Read more »

Investor wonders if it's safe to buy stocks now
Bank Stocks

Is TD Bank Stock a Buy Before May 22?

TD Bank stock is bouncing back strong in 2025, and here’s why you may want to consider it ahead of…

Read more »

customer uses bank ATM
Stocks for Beginners

How to Approach CIBC Stock in 2025

CIBC stock is one of the best banks out there, and yet it doesn't really get the attention it deserves.

Read more »

open vault at bank
Stocks for Beginners

3 Canadian Bank Stocks to Shield Against Market Downturns

Bank stocks are some of the safest to hold on to, but these three are the best out there.

Read more »

clock time
Bank Stocks

1 Magnificent Financial Stock Down 23% to Buy and Hold Forever

This top TSX financial stock is trading well below its recent peak, but its long-term fundamentals remain rock solid.

Read more »

dividend growth for passive income
Bank Stocks

This Canadian Bank Pays 4.75% and Could Double Your Money by 2030

A Canadian bank is a top pick for its lucrative dividend and potential to double your money in five years.

Read more »