The bullish move of stocks since late December has certainly been impressive. It does show how quickly sentiment can change.
Yet the macroeconomic environment still looks dicey. Some of the recent economic data – such as the jobs numbers and home sales – point to a slowing of the U.S. economy. In the meantime, Europe and China continue to have problems. Given all this, it should be no surprise that most central banks have been pursuing looser monetary policies.
So what does this mean for the rally? It’s tough to tell. With such a big move already, there could easily be a pause or even a pullback as investors take profits. But if the economic situation continues to deteriorate, there will probably be an even bigger toll on the markets, with riskier stocks like to drop more than blue-chip names.
That is why it might be a good idea to look for some more stable, blue-chip companies to put in your portfolio. And a good choice right now is JPMorgan Chase (NYSE:JPM). To see why, let’s consider the following three reasons:
JP Morgan Stock: Diverse Platform
The recently announced merger between BB&T (NYSE:BBT) and SunTrust Banks (NYSE:STI) points to the importance of size in the banking industry. The business is highly competitive, as customers want a wide array of services at low costs.
But of course, that’s great for JP Morgan stock. Note that the company is the largest bank in the U.S, with $1.5 trillion in assets and 62 million U.S. household customers (about 4 million small businesses also use JPM).
Additionally, the bank has a diverse platform that includes the top global investment bank and a thriving wealth-management business. Furthermore, JPM is the top player in the highly lucrative credit-card industry.
All this highlights the strategic vision and managerial capabilities of JP Morgan’s CEO, Jamie Dimon. After all, he showed strong leadership during the financial crisis and has since found ways to deal with the new world of banking.
JP Morgan Stock: Innovation
Another benefit of JPM’s large size is that it has enough resources to conduct R&D. For example, the company has 49 million active digital customers, and 33 million of them use their mobile devices for banking.
But the company has been looking at next-generation technologies, such as blockchain, as well. That system is quite powerful, as it enables secure and transparent collection of data. In other words, it’s great for financial transactions.
In the blockchain category, JP Morgan has created JPM Coin. It is geared for making settlements for trade more efficient. All in all, the project is a massive opportunity and could be a nice source of fee income.
JPM is also using partnerships. Perhaps the most notable one is the alliance with Amazon.com (NASDAQ:AMZN) and Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) to develop Haven, a joint venture focused on lowering health-care costs.
JP Morgan Stock: Financials
One of the headwinds facing JPM stock has been onerous regulations. However, there is a silver lining; specifically, the regulations have forced JPM to greatly strengthen its balance sheet. What’s more, some of the rules have been loosened over the past couple of years.
But JPM has been able to consistently generate strong returns on tangible common equity — regardless of the environment. Its return on tangible common equity came in at 17% last year, versus 10.9% for Citigroup (NYSE:C), 13.7% for Wells Fargo (NYSE:WFC) and 15.5% for Bank of America (NYSE:BAC).
The dividend yield of JP Morgan stock, currently around 3.1%, is also attractive. And the valuation of JPMorgan stock is reasonable, as its forward price-earnings multiple is about ten.
Tom Taulli is an Enrolled Agent and also operates PathwayTax.com, which is a tax advisory and preparation firm. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
