JPMorgan Chase & Co. ( ticker : JPM) bills itself as one of the oldest money management firms in the U.S., dating back more than 200 years.
Today, the financial behemoth boasts total assets of $2. 7 trillion -- that's more than the total gross domestic product of India in 2017, the seventh- largest economy in the world.
With 250,000 employees and offices in more than 100 global markets, JPMorgan certainly fits the bill as a global investment banking powerhouse. But is it a portfolio powerhouse for investors looking to make a killing of their own in the banking sector?
Certainly, the pedigree is there for JPMorgan Chase, but investors want to see some profit potential for JPM stock, too. As 201 9 draws to a close, the outlook on that front seems to be a positive one, but not without risks.
JPMorgan Stock at a Glance
JPMorgan Chase stock is trading near $1 30 , with a one-year consensus target rate of $12 3 per share. JPM's market cap is $ 40 6 billion and the stock's dividend payout is a fairly ample 2. 8%.
While just a year ago stocks like JPM were thought to be in a sweet spot, primed to grow profitability as interest rates advanced and the spread between what banks paid in deposits and charged for loans grew.
The outlook isn't so sanguine just 12 months later; the Federal Reserve has already cut rates two times this year, and may cut once more before 2020 arrives. The U.S.-China trade war is on-again-off-again, and the bull markets seems long in the tooth.
That said, you can't argue with results. Even despite falling interest rates, JPMorgan pu t together a record quarter in the third quarter of 2019, as the U.S. consumer remained strong.
"The consumer remains healthy with growth in wages and spending, combined with strong balance sheets and low unemployment levels," JPMorgan CEO Jamie Dimon wrote in the company's third quarter earnings announcement.
Pros to Buying JPM Stock
"In my opinion, JPM is the best-run bank in the mix," says Chris Tuck, a wealth advisor for SJK Wealth Management in Doylestown, Pennsylvania. "The CEO, Jamie Dimon, is second to none."
The only remaining big bank CEO who weathered the 2008-2009 financial crisis, Dimon's a Wall Street legend whose word is taken quite seriously by investors, competitors and analysts alike.
Although slipping interest rates are generally negative for financial institutions, a resilient economy continues to fuel results that have driven JPM stock to all-time highs in 2019. The company reported strong deposit growth, and assets under management hit new records.
On top of that, home and auto lending continues to grow, showing further the strength of the consumer, which drives 70% of the U.S. economy. JPM also saw a nice pickup in its bond trading and credit card segments.
These boom-time results allowed the Wall Street giant to boost its capital return program for shareholders; the company hiked its dividend by 13% this year and boosted its stock buyback program by 43%. And, at a price-earnings ratio of 12, shares seem to trade for a fairly reasonable multiple.
Another thing going for JPM stock is its healthy dividend.
"A big factor that I find appealing is that JPM is continuing to raise its dividend," Glen D. Smith, managing partner for Glen D. Smith & Associates in Flower Mound, Texas, says. "Dividends, over time, can add a lot of value for investors."
That dividend, yield-wise, comes out to 2.8%, roughly a full percentage point higher than what investors can earn from 10-year Treasurys.
Cons to Buying JPM Stock
At face value, JPM looks like an inexpensive stock. But Holmes Osborne, a money manager at Osborne Global Investors Inc. in Odessa, Missouri, says investors should be more skeptical when considering a bank stock's P/E ratio and dividend yield.
"Unfortunately, these metrics don't work so well for bank stocks," Osborne says. "Bank stocks are difficult to understand because you have to know what their assets are -- mainly loans."
JPMorgan has approximately $ 235 billion in short-term investments, $ 394 billion in long-term assets and more than $ 2 trillion in other assets . "That's a lot to keep track of," he says. "In most instances, it's almost impossible for the outsider to know much about the loans the bank has made. As a matter of fact, it's confidential in many cases."
That said, Osborne isn't saying that JPMorgan is a bad stock. "I'm just saying it's difficult to evaluate," he says.
Also, there's the elephant in the room: Banks are dependent on higher interest rates, which should be a key benchmark for banking investors. "This gives financial institutions the ability to charge more on loans while keeping savings rates lower," Tuck says. "For example, banks will give you 2% on a certificate of deposit but charge 5% for a mortgage."
Another "con" that potential investors should consider is simply the global macroeconomic backdrop. Ten years into a recovery, global growth has been weakening, and inflation, generally, is nowhere to be seen. It doesn't look like a period of sustained rising rates is coming anytime soon, although things can quickly change.
If you simply look at what Wall Street analysts are expecting for JPM stock, however, it's clear that not even they -- the notoriously optimistic cheerleaders of so many stocks -- expect JPM shares to rise over the next 12 months.
The Bottom Line on JPM Stock
Bank stocks have remained robust in 2019, despite an interest rate environment that abruptly switched from rising to falling.
With six weeks remaining in 2019, financials have kept almost exact pace with the return of the S&P 500, advancing 24% year-to-date. It's very possible, especially if the trade war doesn't come to a tidy conclusion or consumer confidence begins to wane, that financials may have peaked already.
If you're a believer in the sector, then you'll want JPM to be one of the handful of bank stocks you own. It's fair ly conservative, well-run, and well insulated from a catastrophe, especially given the stress testing performed post-recession.
But just be aware that, entering 2020, JPM stock has had a good run, and it is somewhat tied to what the financial sector does across the board. In that respect, now doesn't seem to be the optimal time to buy, as other sectors offer more compelling risk/reward dynamics.
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