JPMorgan Chase (JPM 1.66%) is the biggest bank in the world -- and it isn't even close.
Measured by market capitalization, JPMorgan's $578 billion valuation dwarfs that of its closest rival, Bank of America, by nearly 2x. But doesn't the "law of large numbers" work against it? If JPMorgan gets bigger, won't it be harder to post even more impressive growth?
Perhaps. But Jefferies analyst Ken Usdin says JPMorgan will grow 13% bigger and hit a stock price of $227 per share within a year.
Is JPMorgan stock a buy?
Usdin previewed JPMorgan's upcoming investor day on Monday, as TheFly.com reports, and reiterated his buy rating. JPMorgan's "ample excess capital" and "best-in-class returns" position it well to take market share from smaller banks, the analyst argues.
He's not wrong.
Traditionally, the holy grail for banking investors has been a bank stock boasting a return on equity (ROE) of at least 15%, a return on assets (ROA) of 2%, and a price-to-book value (P/B) of less than 1.0 -- but banks hitting all these marks are as rare as unicorns. JPMorgan ticks only one of the three boxes. It has a 15.7% ROE, and the bank's ROA is a good, not great, 1.3%. JPMorgan's high profile and strong reputation for superior performance (the stock beat the S&P 500 by nearly 20 percentage points over the past year) also mean that its stock is not cheap at a P/B ratio of 1.9.
In comparison, rival big banks -- including Bank of America, Citigroup, and Morgan Stanley -- all sell for lower P/B ratios ... but require you to accept lower ROEs and ROAs in exchange for better prices.
All of this is to say, I think JPMorgan is probably one of the smarter investments a bank investor could make. It's valued at just over 12 times earnings, but with a slow 4% projected long-term growth rate. I probably wouldn't pay what JPMorgan stock currently costs -- much less 13% more, $227 a share. But at the right price, JPMorgan stock would top my bank stock shopping list.
