Alexander
Bell wasn’t thinking banking when he unwound some wire to create a connection. Quaint it seems now, the notion of telephones for talking. Who talks? Phones are for textual grunts, photos, useless apps, and moving money. Nothing stays the same, and caring just gets in the way. That’s why there are museums. That’s also like our big, old banks. Soon they will need parks, just like dinosaurs, for those who wish to remember.
Moving money used to be hard, and physical. Slow and expensive marred the experience while Western Union provided the piratical pricing. Western Union looks increasingly like Xerox, a company looking for a future. It’s about to get much worse. JPM is far more than either of those dinos, and much more than a money mover. But who cares? Many would say JPM is the best at what it does. But some of what it does is caught in a costly change, and under pressure. Do you want any? Commissioner Gordon could be about to hard-beam the Bat Signal over big banking.
“Odd Lights Hover Over Gotham.” Yeah, we know. There’s no u in Gotham. However, there is a you, in Libra, and all fintech. Think SoFi. You are the target of banking redefined, while the big traditional players like JPM are in the way. Moving money will never be the same. Ask Western Union, but ask quickly. They’re also in the way, but not for long.
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Madison Avenue New York, NY. “What’s there” you ask? Many credible sources will tell you that the bank located on Madison Avenue is the most well run financial institution in the world. “That’s Jamie Dimon’s JPM, the most well-run bank on the planet–right?” At 63, Dimon seems willing to say things others will not, such as the minimum wage should be raised nationwide. Dimon said that to the congressional subcommitee. It’s anyone’s guess as to whether they understood. They understood almost nothing Zuckerberg explained.
Not only is Dimon willing to talk openly and to the most easily confused, he also leads the highest profile operation comprising America’s “big four,” now offering its’ entry-level employees notably more. Front for the bank and receive more money for your organizational contributions than from nearly any other business in the country. That’s the JPM way. And really, Dimon didn’t seem cheesy when he said it, unlike so many bank frauds, like Wells Fargo’s John Stumpf–who was grilled on the hill. “Huh? Fraud? Who–me? We didn’t mean to get caught–I mean forge, fabricate, lie, cheat, and steal. Not to the degree that anyone would notice.”
JPM
is a bank growing revenue at a five year annualized rate of 8%. and cash flow at 11.6%. Meanwhile the Financial sector ranks 7th out of our 11 economic sectors over a one month performance frame, posting a 3.04% return vs. the leading Materials at triple that–9.2%. When viewed YTD the Financials rank 9th at 14.9% vs. 1st place Information Technology at 19.4%. Not bad.
Nonetheless, of the 17 financials Sj now follows JP Morgan Chase ranks 14th in both YTD and 6 month returns–11.39% and 17.9% as of 12:39 PM EST, 6-25-19. Only Morgan Stanley, the criminal recidivist Wells Fargo, and Bank of New Your Melon, returned less. Meanwhile Paypal(PYPL) returned 36.2% and 48.6%. Over the last 20 trading days JPM drops to 15th place, and over 5 it drops again to 16th place returning -1.9%, with only BAC below at -2.9%. BAC lost more in 5 days then one will receive over a year for holding even the highest CD.
Only
a dilettante would tell you banking in America is staid. American banking is now an adventure on tech blend. Change smokes the air as phones become respirators. Ask millennials, Tim Cook, or Mark Zuckerberg. Think payments, electronic. Think fintach and SoFi. Glance left and by the time you look back electronic payments have a new player or plan. Look to live through traffic and Libra appears.
From the beginning Facebook has operated the Wells way. It’s suceeded in worming it’s way to the very bottom of America’s least-trusted companies. Trust has never been their currency, until now. Now they need some, as legislators scowl over their shoulder. FB’s now dancing, in the hope they can build trust, to replace the ripples of resentment and even revulsion. What better than a “free” data-mining social consciousness move? Facebook’s here to help, and by-the-way, we’ll make that data to go.
Cryptocurrencies
are not value systems held or controlled by a single entity. Thus by definition, Facebook’s Libra is not, nor will it probably ever be a legitimate currency. Rather it’s a dollar-based payment mechanism meant to function internationally. Mark Zuckerberg’s transparent self-dealing aside, Libra could prove a huge win for those operating in countries suffering the devastation of raging inflation or broken system currency devaluation. Think Argentina or Venezuela.
We know. You’re thinking “a 6 month return of 17.9%, for a bank–without even adding in the dividends? Fantastic.” Right. Except 13 other financial players beat that, like a garage door-sized gong: WP, GPN, MA, PYPL, DFS, V, AXP, C, SQ, GS, PNC, UBS, and BAC, in that order highest return to lowest. The top 9 returned more than double JPM’s 17.9%. WP returned 75% and GPN 66%.
For investors financial sector innovations have become the norm. Change is in the wind and absolutely everybody’s effected. And Libra’s impact? Who’s in line for that? Mark Mahaney of RBC Capital, out of San Francisco, recently suggested that “the traditional banks” will be most effected by the Libra play. Why not? The western world was funded by and then bought by traditional banking.
JP Morgan Chase(NYSE: JPM) 6-26-19
What
do JPM’s baseline fundamentals say now? JPM trades at a PEG ratio of 2.15, a forward P/E of 10.8%, and pays a dividend of 2.97% with an Ex-date of July 3rd. Or you can buy a criminal turd like Wells for a single multiple less. Both Argus and Credit Suisse love JPM and Morningstar ranks the bank with a “Wide” economic moat rating. CFRA and Reuters both peg a four out of five star rating.
Precisely how expensive is the bank? Current S&P 500 P/E(ttm) is 21.7; multpl.com. JPM’s P/E is an 11.9 average over four quarters. What’s not to love? On sales JPM is 50.2% more expensive than the S&P. Would you pay a bump up of 50% for best in class? Further, comparing the bank to its’ benchmark on book value, JPM is a sensational bargain at 1.5x book value, vs. the benchmark’s 10x book. Historic market wisdom tells us that buying leading companies at book value creates joy. 1.5x book is as close as this train gets. Eat that 0.5x and keep going. Or buy Wells and wonder if you were wrong.
And margins? At 29.9% JPM’s net margin is triple that of the market’s 10%, and their return on equity(ROE), the chief management effectiveness metric, is 13.5% vs. 15.9%. The bank also has 50% greater long-term debt/equity–50% more long-term debt. Yet banks are cash flow machines.
JPM has 2.5x the single year sales growth and more than 20% greater three year sales growth, vs. the benchmark. It also creates 42% greater EPS growth over one year, yet lags the market over three years by 44.4%. And the future? JPM’s 12 month EPS forecast is for 11.2% growth, which lags the market by 36%.
The
S&P 500 hit a new all-time high last week, while JPM posted Q1 record net income of 9.2 billion last time up. That’s a one quarter total, and a lot of money any way you stack it. But investor’s don’t care how much business you’re doing. They only care how much your business is growing. Big traditional banks do more business than almost anyone, but they aren’t beloved big tech. Now big tech has come to big banking, and the change it’s bringing isn’t toward more.
JPM’s performance this year is something any smart investor could embrace. Yet following an 18% run so far, exactly how much gas remains in the tank? Perhaps less, after Powell gets going with his rate ax.
Most anything that’s run more than 20% so far this year smells like chasing. Hard-core value investors refuse to pay up for even the very best. Explain that nonsense. Momentum hounds refuse to accept anything but rocket fuel. Danger Homes. Little value exists now, and anything running on pure rocket fuel is too high to see with sober eyes.
JPM lies deep in the middle. JPM manages more money than the United Arab Emirates. It pays 2.97% just for hanging around. A long-term mentality is the only play here. The “NIM” or net interest margin, so critical to bank growth, will not be expanding anytime soon. Loan volumes will also require time to see growth. Patience is required. Dividends reinvested makes that work. JPM is about as strong and cheap as the good get, even now. What’s not to love? And after you wait a while, and rates rise, you’ll actually feel the love.
JP Morgan Chase Investor Relations;
Quarterly Earnings;
https://www.jpmorganchase.com/corporate/investor-relations/quarterly-earnings.htm
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