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  • Writer's pictureIshfaaq Peerally

Why JPMorgan Chase is the best BANK STOCK ๐Ÿฆ

The market $SPX500 opens higher despite a confirmed case of the deadly virus in the US. In our portfolio, Skyworks Solutions $SWKS is the best performer with earnings tomorrow. GameStop $GME is, however, having another 'bad day' as it is down by 2%. I won't call that a bad as it makes the stock cheaper and more attractive. Falling $OIL prices also means a bad day for our oil stocks, Concho Resources $CXO and Parsley Energy $PE .

Why JPMorgan Chase is the best BANK STOCK ๐Ÿฆ

JPmorgan Chase $JPM is the largest bank in the world by market cap and largest in America by assets under management. It is the largest retail bank in the US, largest investment bank in the world and second largest custodian bank in the world after Bank of New York Mellon $BK . I always tell you that you need to either sell only to the rich, like Apple $AAPl or BMW $BMW.DE or to the poor like Walmart $WMT but JPM has been able to sell to both and that's by correct use of their brands. The Chase brand is focussed on selling to the poor while the JPMorgan brand on selling to the rich. Thus, they can take advantage of any kind of economic environment. For example, right now they are taking advantage of the low interest rate environment to expand their credit card business.

JPMorgan Chase has a Returns on assets of 1.33%, which is well ahead of its competitors, Bank of America $BAC , Well Fargo $WFC , Goldman Sachs $GS , Morgan Stanley $MS and Citigroup $C . They have the highest returns on equity at 15% and highest profit margin at 31%. Their returns on assets and returns on equity are actually growing even with the low interest rates.

What's the secret of JPM? Jamie Dimon and the whole management team. Jamie Dimon is considered to be the best CEO in the world but if we look at the whole management team, they are some of the most qualified people in banking. The good management made JPM a very innovative company. They are the first bank in the US to adopt a cryptocurrency, the JPM coin, to facilitate their $6 trillion daily transactions and Jamie Dimon was one of the first people to say that Bitcoin $BTC was a bubble.

What about valuations? If we assume that the ROA can keep rising and it reaches 1.8% in 20 years, and that their AUM rises by 2% annually, using a discount rate of 9%, we see that JPM has an intrinsic value of $600 billion. If we now assume a scenario that they fail to raise their ROA, the intrinsic value would be $500 billion. In either case, it seems that the stock is undervalued and it is. However, we should understand that this is a bank stock, currently with a Price to book ratio of 1.8. The economy is too good right now and it will be hard for it to get any better. Usually, when there is a recession, bank stocks are hit the most. For this reason, I'm not going to buy more of JPM but only hold for the time being.

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