We consider JPMorgan Chase & Co. (JPM) a top pick moving further into 2021; since we highlighted the stock as our Top Pick for the year, it has returned nearly 30%, more than double the S&P 500, notes Nick Sismanis, contributing editor to Sure Dividend.
Led by its world-famous CEO Jamie Dimon, JPMorgan has been by far the best performer amongst its big-bank peers over the past years financially, and we believe that this will continue to be the case.
The company’s traditional wholesale banking segment remains the best in the country, while its new investments into fintech should eventually pay off big time.
Companies like Square (SQ) and PayPal (PYPL) had an amazing 2020 and entry into 2021. As the fintech market keeps on expanding, JPM should be able to leverage its huge customer base and economies of scale to compete actively with the “modern” players.
For context, JPM has processed $1.5 trillion in gross transaction volume against Square’s and PayPal’s $109 billion and $858 billion last year, respectively. Thus, despite having a AAA balance sheet and exposure to growth through its fintech segment, as mentioned, the stock continuous to trade at a relatively attractive valuation.
In terms of its recent performance, JPMorgan reported first-quarter earnings back in April, with results beating expectations on its top and bottom line. The company saw strong global investment banking fees and equity market revenue, both of which accrued from strength in global equity markets.
Revenue was up 14.3% year-over-year, rising to $32.3 billion, while EPS skyrocketed to a new all-time high of $4.51. Based on analyst expectations, shares are trading at a forward P/E of 12.5. In our view, this multiple is remarkably attractive for such a quality company as JPMorgan, which in addition, offers best-in-class capital returns.
The business features a 5-year DPS (dividend-per-share) CAGR (compound annual growth rate) of 15.13%, while management has bought back and retired around 23% of its stock over the past decade. We believe that JPM’s aggressive capital returns should not only sustain shares high but even encourage a valuation expansion, as investors rush to capture its future gains.
During Q1, JPMorgan repurchased around $4.8 billion worth of stock, suggesting an annualized “buyback yield” of around 3.9% at its current run rate. Combined with the stock’s dividend yield of around 21%, current investors enjoy both rich capital returns and a great margin of safety considering low valuation multiple.
JPMorgan is not a top pick of ours alone. World-class hedge fund Viking Global Investors holds the stock as its 6th largest holding amongst its $36.3 billion of discretionary assets under management.
