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CIBC Only Bargain Among Canadian Banks

CIBC is the most exposed bank to the lofty Canadian housing market, but we think there is enough margin of safety in its shares today to compensate for the risks.

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Eric Compton: We are just entering the next earnings cycle for Canadian banks, and we believe two key themes will be housing and interest rates.

On housing, we will be paying close attention to delinquency rates, loss rates, and loan-to-value ratios, particularly on mortgages within Toronto and Vancouver, which remain the hottest markets within Canada. Last quarter, all of these items remained pristine; however, in late April, the Canadian government increased taxes on foreign homebuyers within Toronto, and since then the market has begun to cool. We will be watching the unwind here, and if it is having any negative effects on the quality of the banks' balance sheets.

Eric Compton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.