JPMorgan Chase isn't exactly a cheap bank stock. The largest U.S. bank by market capitalization, JPMorgan Chase trades at a rather high valuation when compared with its big-bank peers.
However, that doesn't necessarily mean that the bank isn't a good investment. While it's expensive, there still may be value in the stock. In fact, legendary value investor Warren Buffett recently added a $4 billion stake in JPMorgan Chase to Berkshire Hathaway's stock portfolio. With that in mind, here's a rundown of JPMorgan Chase's valuation, as well as some of the key numbers and facts investors need to know.
Image source: JPMorgan Chase.
The most expensive of the big banks
On a price-to-book basis, JPMorgan Chase is the most expensive of the "big four" U.S. banks:
|
Bank |
Price-to-Book-Value Ratio |
|---|---|
|
JPMorgan Chase (JPM 1.67%) |
1.59 |
|
Wells Fargo |
1.46 |
|
Bank of America |
1.16 |
|
Citigroup |
0.89 |
Data source: YCharts.
But expensive for a reason
However, when it comes to JPMorgan Chase, you get what you pay for. JPMorgan Chase is the most profitable of the big four:
|
Bank |
Return on Equity (Q3 2018) |
|---|---|
|
JPMorgan Chase |
14% |
|
Wells Fargo |
12% |
|
Bank of America |
11% |
|
Citigroup |
9.6% |
Data source: Company earnings reports.
In addition, JPMorgan Chase's performance has been rather strong all around its business. Over the past year, the bank's loan portfolio grew by 6%, which is well above the sector average, and deposits increased 4%. The bank's thriving credit card business is growing its revenue at a double-digit pace, and at the same time is improving in terms of asset quality: Net charge-offs are down compared to a year ago.
JPMorgan Chase's investment banking business is also doing extremely well, with the No. 1 market share in investment banking fees so far in 2018.
Catalysts that could drive bank profits in 2019 and beyond
While the effects of tax reform are likely fully reflected in JPMorgan Chase's earnings at this point, there are still some other potential profit-driving catalysts that could lift the banking industry.
Despite recent talk of the Federal Reserve possibly slowing down its rate-hiking agenda, the reality is that we're still in a rising-rate environment. The Fed is almost certainly going to raise rates again in December, and the average projection among FOMC members is still three additional rate hikes in 2019. Rising rates generally translate into better profit margins for banks. In fact, JPMorgan Chase's net interest margin improved by 5 basis points during the third quarter, and I wouldn't be surprised to see this continue.
Additionally, we're finally starting to see some meaningful wage growth in the economy. Plus, unemployment is at a 48-year low and consumer confidence is close to the highest level it's been since 2000. The combination of higher incomes and the confidence to spend money should result in a rise in demand for loans and other consumer banking products.
Is it a buy?
The bottom line is that although banks have been one of the laggards of the stock market in 2018, there are some pretty strong catalysts that could continue to propel profits higher. Despite its lofty valuation, JPMorgan Chase delivers strong returns for investors and its price tag appears to be well-justified. If you want to invest in the best-in-breed among the big U.S. banks, JPMorgan Chase is a great way to do it.
