Is JPMorgan Chase & Co. (JPM) The Best Bet?
JPMorgan Chase & Co. (NYSE:JPM) is probably the best bet for all times. It has not only withered the financial crisis very well but also improved its position as one of the biggest bank in the globe with $2.39 trillion assets. The company, which has been paying a dividend since 1827, is a regular dividend payer though it could not boost the dividend during the crisis period. While its dividend provided a yield of 3.0%, there are other potentials that make it an attractive one. Even though its net margin in the trailing twelve-month period is better than the industry average, its net income growth in the three-year average period was lower due to writing-off of charges. However, that should not take away the positives.
For long-term investors, JPMorgan Chase & Co. (NYSE:JPM) continued to remain the best bet. One of the reasons was its ability to manage things even in a tough environment like the one where interest rate remains at a historically low rate until the middle of the December last year. In a research note, RBC Capital Markets analyst, Gerard Cassidy, that those who own the shares of the JPM and hold it during the cycle period were better off than those who are holding riskier stocks in the same industry. It was not a surprise considering the fact that the bank was well-run and managed one.
One of the positive factors was that JPMorgan Chase & Co. (NYSE:JPM) continued to lead its position in investment banking even after acquiring the troubled Bear Stearns, as well as, Washington Mutual during the crisis period. Also, the company is run by a competent executive Jamie Dimon. The upcoming month could see a possible interest rate hike that would benefit all the banking stocks. After the Fed hiked the interest rate for the first time in a decade in December last year, there was uncertainty on the next rate hike. Though all sorts of rumors or speculations were going on like negative interest rate or retaining the existing or reducing rates, the market perception has changed for the better in the last few weeks.
Rate Hike Might Be Advanced
Currently, reports suggested that the Fed might announce its intention of increasing or at least provide some signals to boost the rate in the upcoming months. That should be music to the likes of JPMorgan Chase & Co. (NYSE:JPM) and other banking stocks. The initial thought of a rate hike in March got postponed to June following the economic data from the rest of the world and Euro and Japan adopting negative interest rates. However, after the announcement of the third estimate of GDP, the perceptions have changed totally. Now, investors and analysts expect the Central Bank to announce the rate hike in April itself.
Last year, Bank of America Corp (NYSE:BAC) indicated that for every one percentage point increase in interest, it would benefit $4.5 billion annually. Though JPMorgan Chase & Co. (NYSE:JPM) did not provide any such estimation, it is natural that the company stands to gain from the interest rate increase. The company reduced its dependence on interest income to 48.5% in the fourth quarter from 52.4% in the year-ago quarter. However, based on the fourth quarter net interest income, the bank is also likely to gain about $4.5 – $4.6 billion for every percentage of interest rate hike. The company should have gained $1.125 billion after the December rate hike. Also, if the Fed hikes rate by 25 basis points next month, then the bank is likely to gain another $800 million or more in the following months for the current year. Additional rate hike in the current year meant additional revenues to be generated.
Housing Still Provides Scope
Another area to grow for JPMorgan Chase & Co. (NYSE:JPM) is housing. The sector is yet to recover fully from the crisis level. That meant there was enough space to offer housing loans in the near-term. Though the housing market is seeing growth, it still offer space for growth as the consumers could conserve money from the significant drop in worldwide oil price. The company’s widespread presence should help it meet the housing loan demand.
As far as valuation, price to earnings for the trailing twelve-month period was 9.9 times for JPMorgan Chase & Co. (NYSE:JPM) while the industry average is 11.0 times. The forward PE is much lower at 9.3 times thus giving enough space to place the bet on the stock.
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