Earlier this week, Punxsutawney Phil predicted an early end to winter -- and maybe he's right. Sure, it's February, and winter's chill still hangs in the air. But already, you can hear the sound of birds chirping, and up on Wall Street...the sweet strains of springtime romance as bankers fall in love.
This morning, a tall, dark gentleman caller from Switzerland arrived on the Street to plead troth to fellow bankers JPMorgan Chase (NYSE:JPM) and Goldman Sachs (NYSE:GS) -- but this was no ordinary caller. In a pair of new upgrades, Swiss megabanker UBS, which is ranked in the top 10% of investors we track on Motley Fool CAPS, announced it has upgraded shares of both JPMorgan and Goldman Sachs from neutral to buy.
That's sweet -- but it's also curious.
Changing news, changing views
After all, just two weeks ago, this same UBS (NYSE:UBS) was telling us that it was actually somewhat less than confident about Goldman Sachs' prospects. Cutting its price target on Goldman stock to $165 in January, UBS warned that Goldman's "exposure to the oil and gas sector," as well as to certain unspecified "noninvestment grade entities," made the stock relatively less attractive. There was a risk that, if oil prices stayed low, some of these borrowers might default on their loans.
And yet, with oil prices having rebounded somewhat from their January lows, it seems UBS has had a change of heart. Today, it thinks the stock is an out and out buy -- and thinks Goldman Sachs shares could actually rise as high as $185 a share! If UBS is right about that, investors who buy Goldman Sachs today could be looking at a 17% profit in just one year's time.
UBS is similarly enamored of JPMorgan Chase, which like Goldman, it has upgraded from neutral to buy. But which of these stocks is really the better bargain?
Putting a price on (UBS') love
Priced below 13 times earnings today, paying a 1.7% dividend yield and predicted (according to S&P Capital IQ consensus estimates) to be capable of growing its earnings 4% annually over the next five years, Goldman Sachs actually doesn't look all that attractive from a traditional PEG-ratio, value-investing perspective. On CAPS, our investors have the stock pegged for only a three-star rating, suggesting most investors see little reason to either sell or buy it.
On the other hand, Goldman shares do sell for a price to tangible book value of just 1.0, and that's often a good benchmark for seeking value in the big banking sector.
Conversely, JPMorgan's P/TBV ratio currently sits at 1.2 -- 20% more expensive than Goldman's. But with a P/E ratio of less than 10, a 3% dividend and a projected 7% growth rate, JPMorgan still looks like a more traditional value candidate. CAPS members seem to agree with this analysis, and give JPMorgan a superior four-star rating, meaning that on average, they agree with UBS that the stock will go up.
Do you know who might actually be a better bargain than either of these U.S. banks, though?
Banker, buy thyself
UBS is something less of a household name here in the U.S. than is either JPMorgan Chase or Goldman Sachs. CAPS members don't give the stock much respect, assigning UBS only two CAPS stars.
And yet, with its 9.6 P/E ratio and 5.5% dividend yield (as calculated by Capital IQ), UBS both costs less and pays more than either JPMorgan or Goldman Sachs. Capital IQ also has the stock pegged for 20% long-term earnings growth, a pace of growth that, if anywhere near correct, will leave Goldman and JPMorgan far behind in just a few years' time. And from a P/TBV perspective, UBS costs only 1.2 times tangible book value -- the same valuation that four-starred JPMorgan Chase stock carries.
When you get right down to it, therefore, while I don't necessarily disagree with UBS' decision to recommend Goldman Sachs or JPMorgan, I suspect UBS may not be giving itself quite enough credit.
Out of this entire love triangle of bankers, UBS just might be the best bargain of the bunch.
Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 251 out of more than 75,000 rated members.
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