The Canadian bank stocks have been gaining quite nicely for investors. With a rather robust finish to 2024, I’m sure many Canadian investors are wondering if there are more good times coming in 2025.
Though the threat of stiff tariffs and a potential return of inflation could derail the great rally in Canadian bank stocks, I think that valuations, at least for the most part, remain quite attractive. As always, however, some members of the Big Six are slightly better deals than others. Either way, I find CIBC (TSX:CM) to be one of the more intriguing value plays in the Canadian banking scene for 2025.
Tariff-related risks could set the tone for the big banks
In a prior piece, I highlighted its Canadian mortgage exposure as a potential risk if Canada’s economy were to fall into a recession or something of the sort. Indeed, a combination of tariffs and a more hawkish Bank of Canada could have a dramatic effect on Canada’s housing market.
Undoubtedly, new investors should keep a close watch on Canada’s mortgage sector as renewals come due with time. Pending a vicious market plunge on the back of a tit-for-tat trade war that ultimately sinks Canada’s economy, I think CIBC stock is a fantastic deal. Indeed, those high-impact, low-probability events should be carefully considered. With such a risk already likely well priced into the stock at these levels, I think the risks are worth bearing as the number-five bank looks to play a bit of catch-up with its four peers.
While shares of CM could take a hit in such a scenario, I view the name as already nicely discounted, with a 12.1 times trailing price-to-earnings (P/E) multiple, or 11.1 times forward P/E. Additionally, CM stock has been one of the leaders of the recent banking rebound, with shares now up 84% since those lows of late 2023.
CIBC has crushed the market of late: Can it keep beating the TSX Index this year?
Indeed, CIBC has quietly put the broad TSX Index to absolute shame in recent years. And while there are challenges for the big banks in the new year, I think credit remains quite sound, at least for the most part. Of course, CIBC may not be the best deal on the Canadian banking scene. However, I am a fan of how it was managed over a fairly turbulent start of the decade.
Though I don’t expect CIBC to gain as much as it did last year, I think investors can do quite well at these levels. A 4.41% dividend yield is quite generous. And as the Bank of Canada keeps cutting, perhaps CIBC’s profitability and loan growth could stay robust. In any case, CIBC seems far less exposed to tariff risks than its more internationally diversified peer, Bank of Nova Scotia (TSX:BNS), which recently received a downgrade courtesy of CIBC Capital Markets. Indeed, a hard-hit domestic economy and a weaker loonie could act as a dampener on international segments.
While no bank is 100% immune from tariff risks, I would look for CIBC’s management team to make it through tougher industry climates.
The bottom line
With shares down close to 8% and earnings on tap later this month, I’d look to add on weakness rather than run to the hills. At the end of the day, it’s a solid Canadian bank with a solid dividend and dividend growth trajectory. Tariffs or not, CM stock is a robust long-term buy.
In short, there’s uncertainty ahead, but CIBC can power through for investors. In the meantime, collect the impressive dividend while you ride through what’s sure to be a choppy year for the banks.
