CIBC (TSX:CM) picked up a nice tailwind in recent weeks after taking a beating through most of 2023. Investors who missed the rebound are wondering if CM stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
CM share price
CIBC trades for close to $59 per share at the time of writing. That’s up from $48 near the end of October but still way off the $80 mark the stock hit in early 2022.
The sharp rebound over the past several weeks has occurred, as investors are increasingly betting that interest rate hikes in Canada and the United States have peaked and that rates will begin to drop at some point in 2024.
All of the big Canadian banks saw their share prices fall as the Bank of Canada and the U.S. Federal Reserve increased interest rates over the past 18 months in an effort to get inflation back to the 2% target. Inflation is currently running near 3% in both countries, so the efforts to cool off the economy appear to be working.
Investors have been concerned that the central banks could drive the economy into a deep recession. Businesses and households are already struggling with the double hit of inflated prices and the jump in debt expenses. If consumer demand falls off a cliff, unemployment could spike as companies adjust to falling revenues. In a worst-case scenario, the banks would see loan defaults surge.
CIBC has a high exposure to the Canadian residential housing market relative to its size. A plunge in home prices caused by a wave of mortgage defaults would likely hit the stock harder than its peers. This is part of the reason the share price fell so much from the 2022 high.
CIBC earnings
CIBC generated solid results for fiscal 2023, despite the challenging environment. The bank reported adjusted net income of $6.5 billion compared to $6.6 billion in fiscal 2022. CIBC finished the fiscal year with a decent capital cushion to ride out some market turbulence. The common equity tier-one (CET1) ratio was 12.4% at the end of October. This is above the 11.5% required by the government.
CIBC increased its provision for credit losses, but the overall loan portfolio remains in good shape. As long as there isn’t a major downturn in the economy, the bank should get through 2024 in good shape.
CIBC dividend
CIBC increased the dividend twice in 2023. This should be a signal to investors that the board is not overly concerned about the profit outlook for next year. Investors who buy CM stock at the current level can get a 6% dividend yield.
Is CIBC a buy today?
Ongoing volatility is expected until there is clear evidence that the central banks are done raising interest rates, but the bottom for Canadian banks might have already been reached.
CIBC isn’t as cheap as it was a few weeks ago, but the stock still looks attractive for a buy-and-hold portfolio at the current level, and investors get paid well to wait for the next leg of the recovery. Existing investors should probably hold on to the stock at this point. New investors might want to start nibbling and look to add to the position on any additional downside.
