The Dow Jones Industrials (^DJI 0.56%) has been on a roller coaster of a ride since the coronavirus pandemic struck the economy. It has regained sharp losses sustained earlier in the pandemic but has not had the same success or reached new highs like other indexes, such as the S&P 500 (^GSPC -0.88%). Because it's a benchmark investors use for blue-chip stocks, it's receiving a lot of attention due to the volatility it has seen and could continue to see as the presidential election approaches.
But one stock on the Dow Jones that I really like is JPMorgan Chase (JPM 2.51%), America's largest bank. Yes, the banking sector has been battered since the pandemic struck, but I only see good things ahead in the long term for this stock.
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Competitive advantages
Banking can be looked at as a pretty generic industry, which is why it can be hard to develop a brand that really has loyalty. JPMorgan is one of the few that has managed to do this, now growing to more than $3 trillion in assets. The bank has truly managed to be a top player in every line of business it operates in. It rivals Goldman Sachs (GS 0.22%) as a top investment bank; it has one of the largest credit card portfolios; it has a huge consumer bank footprint; and it is also one of the top wealth managers. It's really a difficult thing to rank so high in so many different categories of banking. Its CEO, Jamie Dimon, is also widely seen as the leader of the banking industry. His words and actions are always carefully watched, and he often leads the way when it comes to advocacy and judgment for the industry.
Stability
JPMorgan's stock is down about 29% since the beginning of the year, but the bank continues to show it can run very profitably in times of duress. During the Great Recession, the bank certainly struggled at times but never took a quarterly loss in 2007, 2008, or 2009. In fact, in most of those quarters, the bank was turning a profit of anywhere from $2 billion to $4 billion.
Since the pandemic started, JPMorgan has continued to perform well given the circumstances. In the first quarter, the bank turned a $2.8 billion profit and in the second quarter, the most difficult three-month period JPMorgan has seen since the Great Recession, the bank turned a nearly $4.7 billion profit. That's after setting aside close to $19 billion to cover potential loan losses from the pandemic, the most money it has ever set aside to cover losses in a six-month period. In the second quarter, JPMorgan offset the high provision for losses with record-trading revenue that ultimately drove record quarterly revenue at the bank. It's hard to be too down on a bank that just put up record revenue and close to a $5 billion profit during a quarter where GDP declined by almost 33%.
Continued growth
Despite being a leader in many categories already, JPMorgan still has lots of potential for growth. One area I could see the bank growing substantially is its retail bank division. For the largest bank in the country, it doesn't even have an office in every U.S. state, according to the FDIC, and only has a significant retail presence in about half of U.S. states. But the bank has already strived to change that .
In 2018, JPMorgan said it would add 400 branches in new markets in major cities like Boston, Philadelphia, and Washington D.C. where it didn't have a big retail presence. Many of those new branches got off to a terrific start before the pandemic, with some bringing in north of $100 million in deposits in just a few months. The bank also recently inquired about putting ATM machines at branches of the U.S. Postal Service, again showing its desire to continue to grow its footprint .
Additionally, the bank also recently received approval from the China Securities Regulatory Commission to fully own and operate a futures subsidiary in China, making it the first completely foreign-owned futures business in the country. JPMorgan also has plans to set up other fully owned operations in China, so rest assured there is plenty of opportunity for growth domestically and internationally.
Buy the stock at a great value
With JPMorgan trading close to 30% lower from what it started the year at, this is a great time to buy the stock. At the end of the second quarter, JPMorgan was only trading at 1.58 times tangible book value. That's better than a lot of other banks but still low for a company that regularly generated a 17% to 20% return on tangible common equity for investors before the pandemic. With a leading brand, a top CEO, the ability to stay profitable in recessions, and growth opportunities ahead, this is a great stock in the Dow to own.
