Canadian Imperial Bank of Commerce (TSX:CM) is up nearly 30% in the past four months. Investors who missed the rally 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) focused on dividends and total returns.
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CIBC share price
CIBC trades near $100 per share at the time of writing compared to $78 at the low point of the April tariff rout. The stock was $40 during the worst days of the pandemic crash.
CIBC has historically been more volatile than its large Canadian peers. The stock pulled back from $82 in early 2022 to $48 in November 2023 during the cycle of aggressive interest rate hikes by the Bank of Canada and the U.S. Federal Reserve. Investors sold CM amid fears that the central banks would have to push the economy into a meaningful recession to get inflation down to target levels. Inflation fell, but the recession didn’t materialize, likely due to high household savings built up during the pandemic.
As soon as the central banks indicated they were done raising interest rates, bargain hunters moved back into bank shares. The rebound picked up momentum in the second half of 2024 when the Bank of Canada and the U.S. Federal Reserve started cutting rates to navigate a soft landing for the economy.
Risks
CIBC has a large Canadian residential mortgage portfolio relative to its size. The big bet on the Canadian housing market drove strong profits over the past decade, but this also puts CIBC at a potentially higher risk of large defaults if unemployment surges.
Approximately two million Canadian fixed-rate mortgages are coming due in 2025 and 2026. Most of these loans were taken during the pandemic at record-low mortgage rates. Renewal interest rates are down from the 2023 highs, but remain elevated, so some households with too much debt are going to run into trouble.
At the same time, banks have been competing aggressively to steal good clients. This could squeeze loan margins. The jump in yields on Canadian government bonds in recent months will likely force the banks to start raising mortgage rates in the near term as they shift focus to protect profits.
Tariffs could start to hurt the American and Canadian economies heading into 2026. If a recession arrives next year and job losses spike while mortgage rates are still relatively high, there could be some pain on the way for CIBC and the other Canadian banks.
Upside
CIBC made strategic acquisitions in the United States in recent years to diversify its revenue stream. This helps offset the exposure to the Canadian market and positions CIBC to benefit from expansion in the U.S. market.
Time to buy?
CIBC should deliver solid long-term gains for buy-and-hold investors, even from this level. That being said, shareholders who bought CIBC near the lows of the 2020, 2023, or 2025 pullbacks might consider booking some profits right now.
Additional near-term gains are certainly possible, but new investors could see a better entry point emerge in the coming months if the economy starts to roll over.
