Why JPMorgan Chase & Co. (JPM) Stock Still Has What It Takes

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Spirits should be high going into JPMorgan Chase & Co.’s (NYSE:JPM) second-quarter earnings call on Friday. All banks passed the Federal Reserve Board’s stress tests at the end of June, meaning that they are better capitalized and therefore less likely to run into another 2008 situation.

Why JPMorgan Chase & Co. (JPM) Stock Still Has What It Takes

So, based on these qualitative and quantitative assessments, banks are “safe,” in theory. More importantly, it means they’re allowed to up their payouts to shareholders via increased dividends and share repurchases, a favorable recipe for higher JPM stock prices.

JPMorgan Chase, my favorite of the lot, has authorized share buybacks of up to $19.4 billion between July 1 and June 30 next year and currently yields just over 2%.

It wouldn’t be inaccurate for me to be a member of CEO Jamie Dimon’s fandom. As the captain of the JPMorgan ship, he has weathered a big storm, growing JPM stock and making the company phenomenally successful. As such, I expect JPMorgan earnings to show more of the same progress.

JPM Stock: Performance

Let’s do a quick review of returns to remind ourselves of how well JPM has performed under Dimon.

We all know the adage that “past performance does not guarantee future results,” but so long as Dimon is steering this ship, I’m happy to get on board and keep on sailing. Now, it’s true that a CEO doesn’t directly control stock price performance, which is subject to the vagaries and emotional swings of the market at large, but still, it’s indicative of confidence in management and its ability to generate shareholder returns.

But don’t take my word for it. Look at the numbers for yourself.

Since the Bank One merger in 2004 to the end of 2016, JPM stock has grown at a compounded annual return of 9.5% versus the S&P 500’s return of 7.8% and S&P Financials’ 2.3%; overall gains are 211% to the S&P 500’s 155% to the S&P Financials Index’s 32%.

Never have the numbers spoken more for themselves. Phenomenal performance even factoring in the more recent financial crisis when the sky seemed to be falling and JPMorgan seemed like it would surely be one of the dominos to fall.

Even in the immediate post-crisis period, JPM stock has performed incredibly well. In the five-year period ending last December, JPM’s CAGR was 24% to the S&P 500’s 15% to the S&P Financials’ 19%.

Looking at another metric commonly used for banks — tangible book value per share — the numbers are even more off the charts. From 2000 to 2016, JPM stock has grown at 12% annually vs. the S&P 500’s 4.3% and S&P Financials Index’s 7.9%. Since the merger in 2004, the respective figures are 13.2%, 7.8% and 5.4%.

Any way you cut it, Dimon knows how to not only run, but also grow a financial institution like JPMorgan.

What’s in Store for JPM

Q1 earnings showed just how strong the underlying business is. There were some big spikes in investment banking revenues (higher debt and equity underwriting fees) relative to prior quarters that may be hard to replicate, but this will be balanced by the strength in commercial banking where I would expect to see continued year-over-year and quarter-over-quarter growth.

In asset and wealth management too, it seems reasonable to expect continued growth with client assets pouring in. Keep an eye on ROE here though — there was a drop to 16% from 25% during Q3 2016 despite the growth in assets.

Also keep your eyes peeled for credit card sales volumes. In the consumer and community banking division, they’ve been making a big push in the territory of incumbents like American Express Company (NYSE:AXP) and further growth in transaction volume would be a good sign.

JPMorgan Earnings: Ride or Time?

As the performance numbers above show, JPM’s stock has had a great run since the crisis. Even though we find ourselves at a point where overall market valuations are high and bears keep railing on about an imminent correction, JPMorgan is not one of the companies in my portfolio I’m worried about if such a correction does materialize.

It’s simply an amazing business run by a super competent leader, and it’s probably better to just ride out the this next cycle versus trying to time it. JPM stock is a survivor. If there was a shock to the system or a downturn, it would come out the other side in decent shape just as it did post 2008.

 As of this writing, Luce Emerson was long JPM.


Article printed from InvestorPlace Media, https://investorplace.com/2017/07/jpmorgan-chase-co-jpm-stock-has-what-it-takes/.

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