Our newest stock pick, JPMorgan Chase (JPM), is more Main Street than Wall Street; it has over 5,100 branches nationwide, serving millions of customers in the United States, asserts growth and income expert Hilary Kramer, editor of Value Authority.
Its consumer unit, which provides standard banking services, contributes approximately 52% of profits, while its commercial lending business contributes another 14%. The remaining 34% does come from Wall St., through the company's investment banking and asset management operations.
JPM has been led by the iconic Jamie Dimon since 2006. Mr. Dimon managed to avoid the worst of the financial crisis, keeping the bank profitable by avoiding the large losses in leveraged mortgage-backed securities.
The strong culture of risk management remains alive today, with the bank maintaining a strong capital structure, which Mr. Dimon refers to as the “fortress balance sheet.” The company concluded 2018 with Tier One Capital at 12% of total assets, well above the 6% regulatory standard to be considered well capitalized.
Earnings per share (EPS) of $1.98 of versus $1.76 in the prior year were $0.23 short of expectations. However, the underlying business was strong, with loan growth up 6% and loan losses down slightly.
On the conference call, Mr. Dimon said the company continues to gain share in several businesses. Also, while he is confident about the economy for now, he will not hesitate to cut back on lending should economic conditions warrant, saying no manager should feel pressure to grow the loan book.
I view the quarter as a bit of an anomaly, and it does not match my view of the company for 2019. Should the economy stay firm, EPS of $9.80 for 2019, up from $9.00 in 2018, is possible.
Should the economy slip a little bit, the defensive characteristics of the bank will still keep results on a stable path. At just 10X 2019 estimates, JPM is a strong value here and a great buy for those who want to be involved in the financial sector in a conservative way. Buy JPM under $100, my target is $110.
