Down 20.21%, Is CM Stock a Bargain Now or Should Buyers Beware?

This stock might be down by over 20% in the last 12 months but can potentially deliver stellar returns in the future.

| More on:
edit Woman calculating figures next to a laptop

Image source: Getty Images.

Despite being up by 4.39% year to date, the S&P/TSX Composite Index is down by 3.51% from its 52-week high at writing. With the Canadian benchmark index indicating a downturn in the broader market, investors seeking discounted high-quality stocks have a great opportunity. With market uncertainty comes the chance to buy strong stocks trading for lower-than-fair values.

However, investing in just any stock trading at lower valuations is not a good strategy. Instead, you should do your due diligence to identify the strongest stocks with the greatest chance to deliver returns.

With a potential recession dangling overhead, many risk-averse investors might be wary of allocating any money to the stock market. Seasoned investors understand that recessionary environments are a part of the economic cycle. To pick out stocks to buy and hold during a recession, you can always look at companies that have performed well for decades.

To this end, the top Canadian bank stocks might be the perfect place to look for a long-term buy-and-hold asset. When looking at Canadian bank stocks, Canadian Imperial Bank of Commerce (TSX:CM) can be a great option to consider.

Why look at CIBC stock?

CIBC stock, like its peers in the Big Six Canadian banks, has always been a solid investment for long-term investors. The $51.08 billion market capitalization Canadian financial institution has enough liquidity to protect itself from defaults using provisions for loan losses. When the downturn comes to an end, its loan loss provisions will improve its financial position.

With each recession that CIBC stock has been through, the Canadian bank has become stronger when the dust settles. Another strong point to consider is that Canadian banks do not operate the same way their American counterparts do.

Since the Big Six do not have as much competition as American banks, they do not need to spend as much on acquiring new clients. Instead, they operate without hidden bankruptcies and have substantial funds available to put aside.

Unlike its peers, CIBC primarily focuses on its domestic operations. Since it invests heavily in the Canadian economy, the state of the Canadian economy can have a significant impact on CIBC stock’s share prices. With the Canadian benchmark index indicating weakness in the Canadian economy, CIBC stock being down by 20% from its 52-week high might not be a surprise.

Foolish takeaway

At current levels, CIBC stock trades at 11.28 times its trailing price to earnings and boasts a juicy 5.99% dividend yield, much higher than its Big Six peers. While CIBC stock might not be the biggest bank in market capitalization or assets, around a third of the Canadian population uses the bank.

With its share prices down significantly and an eventual recovery in the future, it might be worth adding to your self-directed portfolio. Adding it to your portfolio today means you can generate significant passive income through its high-yielding dividends. You can also enjoy wealth growth through capital gains when it recovers, all while lining your account balance with its dividend payouts as you wait.

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 Adam Othman has no position 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 Dividend Stocks

bulb idea thinking
Dividend Stocks

TFSA Investors: 2 High-Yield TSX Stocks With Great Dividend Growth

These top Canadian dividend-growth stocks now trade at discounted prices.

Read more »

Businessperson's Hand Putting Coin In Piggybank
Dividend Stocks

How Much Can You Really Earn in Passive TFSA Income?

With a diversified portfolio of high yield stocks like Enbridge (TSX:ENB) you could potentially get up to $4,400 per year…

Read more »

data analyze research
Dividend Stocks

2 Stocks to Invest in a Sideways Economy

Not all stocks are equally vulnerable to the weak economy and market, and the right stable investments can help you…

Read more »

Value for money
Dividend Stocks

Why Canadian Investors Should Add This Value Stock to Their Portfolios

This value stock is down now, but this comes all from outside impacts. A year from now, you'll likely wish…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

This 7.1% Dividend Stock Pays Serious Cash

After the pullback, Enbridge stock offers a compelling dividend yield of almost 7.1% It's a good consideration for passive income.

Read more »

stock research, analyze data
Dividend Stocks

3 TSX Stocks With Unbeatable Passive Income and Bargain Prices

Three TSX stocks trading at bargain prices are buying opportunities for their relatively safe and sustainable dividend payments.

Read more »

value for money
Dividend Stocks

3 Cheap Dividend Stocks Paying up to 10%

Income-seeking investors can consider buying shares of high-dividend stocks with monthly payouts, such as Slate Grocery REIT.

Read more »

Senior couple at the lake having a picnic
Dividend Stocks

Retirees: Here’s How to Boost Your CPP Pension

The CPP can only cover a portion of your daily expenses. Take control of your pension, and boost the $811…

Read more »