The financial sector has done quite well in 2014, but some banks may have a lot more room to the upside in 2015. We asked three of our top financial sector analysts which bank stock they want to own going into 2015. Here's what they had to say.
Most banks reported very good results for the third quarter, but Morgan Stanley was in a class by itself. The company easily surpassed Wall Street's expectations for both earnings and revenue and produced remarkable growth in several key areas.
For example, the company's advisory revenue grew by 43% year over year, and equity underwriting revenue nearly doubled. This was due to the very strong M&A and IPO activity of 2014, which I believe will continue next year as the economy continues to improve. When the economy and markets are doing well, companies are more inclined to agree to an acquisition, and private companies are more likely to IPO and maximize their share price.
And Morgan Stanley's wealth management business is growing and becoming more efficient at the same time, with 8% revenue growth and fewer employees than last year. The division is growing in the right way too, with positive inflows of money into client accounts.
Essentially, Morgan Stanley is an excellent way to play the continuing improvement in the U.S. economy, and the stock market's strong performance, both of which should continue throughout 2015.
As previously discussed, it currently trades at a very reasonable valuation relative to the strength of its financial position. In addition to its financial strength, the strength of its businesses also makes it a compelling investment consideration.
Over the past year, its deposits have grown by 8.8% relative to the 3.2% market growth rate, and for three years running it has led the way in deposit growth among all banks. The past two years it was first in customer satisfaction relative to the largest banks, and based on the loans outstanding it is the largest credit card issuer in the United States.
And it isn't only the consumer and community banking business that's strong at JPMorgan. Its corporate banking and asset management operations are healthy as well. Through the first nine months of the year, it ranked first in total global investment banking fees, with an 8% wallet share. In addition, its assets under management have grown by 11% over the past year to $1.7 trillion.
All of this is to say, JPMorgan Chase is a worthy bank to buy based on the performance and positioning of both its businesses and its balance sheet.
But what a region, and what a focus. All told, around two-thirds of the bank's loan portfolio consists of multi-family mortgages. The majority of these are in the narrow but oh-so-dependable and lucrative New York City market, specifically rent-controlled properties.
The Big Apple, after all, will always be a desirable place to live, so that portfolio's overall risk of default is extremely low. Not surprisingly, the bank's charge-offs (consistently under 0.5%) are far below those of regional or even national peers.
Not only is the bank's business strategy excellent, but its profitability is sky-high, and it likes to pay its stockholders -- the company has been handing out a $1.00 per share annual dividend for many years now, and there's every reason to believe this will continue into 2015 and beyond.
Which is nice, because at that rate the stock currently boasts a dividend yield of 6.3%, more than three times the average of S&P 500 component firms.
Eric Volkman, Matthew Frankel, and Patrick Morris have no position in any stocks mentioned. The Motley Fool owns shares of JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.