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Why Wall Street Isn’t Truthful About These Stocks

Talking Numbers

Two big banks, two big market calls: JP Morgan gets an analyst upgrade while Wells Fargo gets a downgrade. But can you trust what the financial industry has to say about itself?

Raymond James upgraded JPMorgan Chase to a “strong buy” yesterday while Keefe, Bruyette, & Woods (KBW) downgraded Wells Fargo to a “market perform”. Which one of these two is the better buy?

“I don’t really like either of them,” says CNBC contributor Zachary Karabell, president of River Twice Research. Karabell cites increasing regulations, tighter spreads for the lending business, and lower service fees as a reason he doesn’t like the banking industry as investment. Nonetheless, he’s more bullish on Wells Fargo than on JPMorgan.

“It’s going to be an increasingly less profitable, more shrinking business,” says Karabell. “I think that’s good for the world. It’s just difficult for the financial service world.”

Yet Karabell doesn’t only have a problem with financial institutions as investments, he also has a problem with financial institutions analyzing other financial institutions.

“I don’t think financial service companies are the best companies to evaluate the worth of financial service companies,” says Karabell. “This is another big problem with the financial services industry – all the stock recommendations are made by people in the financial services industry. Frankly, I don’t think the perspective of what these businesses are worth intrinsically is best served by people who are actually in the industry.”

That doesn’t stop technical analysis from trying to find an investment idea with banking stocks, according to Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson.

“As a technical analyst, I have the luxury of not allowing pesky little things like the fundamentals to get in the way of a nice technical setup,” says Ross. He believes the charts have the answer to which stock is the better investment. “In this case, JPMorgan is the superior stock chart, if not the superior company. “

Analyzing a chart of JPMorgan, Ross says, “You can see this beautiful technical symmetry which suggests that the stock goes higher.”

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JPM chart by Richard Ross

JPM chart by Richard Ross

“We’ve seen three textbook pullbacks 8% to 9% -- last fall, earlier this spring, and once again with this recent summer correction,” says Ross. “Each has proved to be an outstanding buying opportunity.”

“This is textbook advance and retracement within the context of a corrective trend channel followed by another extension of that bull run,” says Ross. “The stock’s already pushed out to a fresh, new multi-year high over $53. I think we have another potentially 20% upside. I’m looking for $60 in this stock.”

Does Ross’ positive view of JPMorgan outweigh Karabell’s negative take on the industry in general?

Watch the video above to hear Karabell and Ross analyze JPMorgan, Wells Fargo, and the future of banking to make decide which one is right.

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