JPMorgan Chase (JPM +0.01%) ended 2024 on a fairly strong note. Investors appear to have noticed, too, since the stock is up about 40% during the past year, even after a pullback in recent days. Is this diversified financial giant a buy, sell, or hold today?
Sell JPMorgan Chase
In the case of JPMorgan Chase, the sell (or, more properly, the "don't buy") thesis helps to set up the rest of the story. And it all comes down to valuation. Even after a small pullback in price, the shares are still up sharply. But, more to the point, they're still trading near historic highs.
Just because a stock is near-all time highs doesn't make it expensive. But it hints that valuation might be an issue. And in the case of JPMorgan Chase, valuation is a very big issue. For starters, the dividend yield is near its lowest levels of the past decade. That will probably reduce the attraction for income investors, but using dividend yield as a rough gauge of valuation, it also hints that the stock is pricey right now.
That view is backed up by more traditional valuation metrics. Specifically, JPMorgan Chase's price-to-sales, price-to-earnings, and price-to-book value ratios are all notably above their five-year averages. If you care at all about valuation, JPMorgan Chase won't be very attractive to you.
Buy JPMorgan Chase
Given the sell thesis, it's probably going to be hard for most investors to justify buying JPMorgan Chase right now. You need to believe that the future is going to be even brighter than the present. And since it looks like a lot of good news is priced into the stock today, it seems there's more downside risk than upside opportunity.
In fact, the current price pullback, which is less than 10%, doesn't represent a material change in the situation. Indeed, JPMorgan Chase has experienced numerous 30% declines and even a few 60% plunges in the past. There's no way to tell whether the current price decline will turn into a big retreat, but to expect the stock to start rocketing higher given its valuation sounds like a tall order.
To justify buying JPMorgan Chase right now, you have to have a very strong belief that the business is about to produce even more impressive results. Or that, somehow, Wall Street will reward the company with an even higher valuation if its business maintains its current performance levels.
Hold JPMorgan Chase
This is where the hold thesis comes in. JPMorgan Chase looks expensive, but it did just end a pretty strong year. For example, in the fourth quarter of 2024, net revenue increased to roughly $42.8 billion, up from $38.6 billion in the same quarter of 2023. And earnings tallied up to $4.81 per share in the final stanza of 2024, versus $3.04 a year earlier. Add to that a five-percentage-point improvement in return on common equity and a six-percentage-point jump in return on tangible common equity.
NYSE: JPM
Key Data Points
Sure, JPMorgan Chase's stock looks expensive. But if you own it and are happy to hold on to a well-run company for the long term, why would you sell it? It's probably better to just sit tight and accept that another decline will eventually come along, maybe opening up a chance for you to buy more shares. For most investors, the best way to benefit from a company's long-term growth is to buy and hold through the inherent ups and downs in the stock market. Attempting to jump in and out of a stock is akin to market timing, and that's hard to do successfully over the long term.
JPMorgan Chase isn't a bad company
One of the things that legendary value investor Benjamin Graham always highlighted was that a good company can be a bad investment if you overpay for it. That looks like the situation today with JPMorgan Chase. That said, if you own shares of this financial giant, selling it might not make a lot of sense. As Graham's student Warren Buffett has shown many times over, buying good companies at reasonable prices and holding for the long term can lead to impressive total returns over time.
