Why CIBC Could Be One of Canada’s Top Banking Stocks to Buy for 2020

Canada’s worst performing bank is also Canada’s cheapest. Canadian Imperial Bank of Commerce (USA)(TSX:CM) Stock is positioned for a strong 2020.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It has been a rough ride for Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) shareholders. In three of the past four years, the company has been the worst-performing bank of the Big Six.

In fact, over the past five years, the bank has only achieved a compound annual growth rate of 3.71%. This is not only significantly below the average of its peers, but it also trails the S&P/TSX Composite Index‘s CAGR of 4.01% over the same period.

On the bright side, as CIBC’s yield is among the best of its peers, it fared a little better that the share price performance suggests. When including the dividend, the stock delivered total returns of 50.33% over the past five years.

While this is below the Big Six average of 69.09%, it is almost double that of the S&P/TSX Composite Total Return Index (37.77%).

In 2019, it was a mixed year for the company. The company once again brought up the rear in terms of share price appreciation (6.27%), but it ranked third in terms of total returns (12.03%) thanks to its juicy dividend. Here’s why now might be the perfect time to buy Canadian Imperial Bank of Commerce.

A simple investing strategy

At these price levels, the case can be made to buy any of Canada’s Big Six banks. However, there is a simple investing strategy that investors can use at the beginning of the year to help inform their decision making: buy the worst-performing Big Six bank of the previous year.

This back-tested strategy has led to outperformance in 14 of the past 20 years: a 70% success rate. Despite CIBC being a perennial underperformer, the only years in which it finished back-to-back as the worst performing Big Six bank was in 2018 & 2019.

It is also worth noting that Canadian Imperial was last in nine of the past 20 years, but outperformed in seven of the years that followed — a 78% success rate.

No bank has thus far finished last over three consecutive years. The strategy has led to an average outperformance of 500 basis points on a yearly basis, which is quite a big difference.

Canada’s cheapest bank

Given that it has chronically underperformed over the past two years, no bank offers better value that Canadian Imperial Bank of Commerce. The company is trading at a 19% discount to its historical P/E averages, almost double the Big Six average discount (10%).

Like clockwork, Canada’s big banks always return to trade in line with historical averages. It is not a matter of if, but when CIBC’s stock will close the gap.

At price-to-book and price-to-earnings ratios of 1.355 and 9.69, respectively, CIBC’s stock is the cheapest it has been over the past decade. Apart from a brief period last year, the bank hasn’t been this cheap since the financial crisis.

It’s important to note that an investment in Canadian Imperial is not without risk. In 2020, it has the lowest expected growth rates among its peers and it has the highest dependency on the Canadian market.

Similarly, it recently made headlines as it faces more than $50 million in potential losses over alleged fraud by a trucking firm.

Despite this, now might be a good time to head Warren Buffet’s advice to be “fearful when others are greedy and greedy when others are fearful.”

Should you invest $1,000 in CIBC right now?

Before you buy stock in CIBC, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and CIBC wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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 mlitalien has no position in any of the stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

dividend growth for passive income
Dividend Stocks

Why I’d Invest in Canadian Value Stocks for Both Stability and Growth

Three Canadian value stocks are buying opportunities for investors looking for stability and growth.

Read more »

investment research
Dividend Stocks

Got $15,000? 3 Blue-Chip Stocks Every Canadian Should Consider

Here's why investing in blue-chip TSX stocks such as CNQ and CNR should derive outsized gains in 2025 and beyond.

Read more »

protect, safe, trust
Dividend Stocks

Where I’d Allocate $20,000 in 2 Safer High-Yield Dividend Stocks for Retirement Needs

Here are two safer, high-yield dividend stocks I'm looking at for my retirement needs.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

3 Reasons I’m Considering Enbridge Stock for a $5,000 Investment This April

I'm considering Enbridge stock to provide some defensive appeal and a juicy dividend to my long-term portfolio.

Read more »

monthly desk calendar
Dividend Stocks

A 9.2% Dividend Stock Paying Cash Every Single Month

With one of the highest dividends out there, this dividend stock deserves attention in your portfolio.

Read more »

Happy golf player walks the course
Dividend Stocks

Build a Powerful Passive Income Portfolio With Just $20,000

If you are worried that the bear market could reduce your savings, these stocks can build a powerful passive income…

Read more »

Hand Protecting Senior Couple
Dividend Stocks

How I’d Use My $7,000 TFSA Contribution to Start Retirement Planning

These TSX stocks have solid fundamentals and are well-positioned to deliver significant tax-free total returns over time.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

How to Turn Your TFSA Into a Gold Mine Starting With Only $10,000

It doesn't have to be complicated or scary. You can turn any portfolio into a major gold mine.

Read more »