Better Bank: Wells Fargo or JPMorgan?

In a new Motley Fool series, we pit two stocks against each other on five criteria to determine the better buy.

Today's matchup is Wells Fargo (NYSE: WFC  ) vs. JPMorgan Chase (NYSE: JPM  ) . Using five short-of-scientific-but-carefully chosen criteria, let's determine which is the better buy according to the numbers:

 

Factor

Wells Fargo

JPMorgan Chase

Cheapness

(P/E ratio)

35.0

35.7

Growth

(5-year growth rate)

-17.5%

-17.8%

Operations

(net margin %)

6.48%

5.34%

Balance Sheet

(debt/equity ratio)

2.71

2.45

CAPS Rating

(scale of 1 to 5 stars)

3 Stars
2 Stars

Round 1: Cheapness

Advantage: Wells Fargo. Cheapness is determined by P/E ratio. The lower the better. Be careful of earnings near zero that skew the ratio, one-time gains and losses, and pasts that aren’t indicative of futures (the more dynamic the industry, the more this is true).

Round 2: Growth

Advantage: Wells Fargo. Growth here is the trailing 5-year EPS growth rate. This trailing earnings growth helps put notoriously-optimistic Wall Street projections in perspective.

Round 3: Operations

Advantage: Wells Fargo. Net margin percentage shows how efficiently a company turns revenue into profit. The more similar the business models, the more relevant the comparison.

Round 4: Balance sheet

Advantage: JPMorgan. As with net margins, the debt to capital ratio is most relevant in comparing companies in similar industries. In this battle we give the nod to the lower-debt company, but attention should also be paid to the cost of debt, interest coverage ratios, and the stability of the business (the more stable a company’s operations, the more debt it can safely carry).

Round 5: CAPS rating

Advantage: Wells Fargo. A company’s CAPS rating is our community’s opinion of the stock. You can get more information on your stocks -- and our community’s opinions of those stocks -- by clicking over to CAPS area.

Each of these five rankings need more context -- like, how these companies stack up against key competitors such as Bank of America (NYSE: BAC  ) and Goldman Sachs (NYSE: GS  ) . But these basic numbers suggest that Wells Fargo is a better buy. What do you think? Let us know in the comments section below.

No individual person selected the stocks in this article, so there is no author to disclose an interest in them. Since this article was automatically generated by identifying the stocks loved both by the CAPS community and by buyers in today’s market, it is possible that Motley Fool personnel (and even The Motley Fool itself, through our Million Dollar Portfolio, Motley Fool Pro, and Ready Made Millionaire services), have positions in these stocks. We thought you'd like to know that. You can learn more about The Motley Fool’s disclosure policy here.


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