JPMorgan (JPM) is a top pick for 2021. 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, and we believe that this will continue to be the case, suggests Nikolaos Sismanis, editor of 13F Smart Money.
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.
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 "modern" players. For context, over the past four quarters, JPM has processed $1.5 trillion in gross transaction volume.
Despite having an AAA balance sheet and exposure to growth, though its fintech segment mentioned, for example, the stock is currently trading a relatively attractive valuation.
Based on analyst expectations, shares are trading at a forward P/E of 13.5. In our view, this multiple is remarkably attractive for such a quality company as JPM, which in addition, offers best-in-class capital returns.
JPMorgan features a 5-year DPS (dividend-per-share) CAGR (compound annual growth rate) of 16.17%, while management has bought back and retired around 21% of its stock over the past decade.
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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.
Earlier in the year, the Fed had limited banks' buybacks in order to ensure that adequate liquidity is maintained. The Fed's stress tests that were being conducted over the past few weeks came out encouraging, lifting most of its previously imposed restrictions.
The minute after the Fed's announcement was released JPM published a new monster buyback program of $30 billion, which represents nearly 8% of its current market cap.
Not only should this boost the company's EPS massively over the next couple of years, but such a bold figure further highlights JPM's financial resiliency and healthy balance sheet.
JPMorgan is not only a top-pick of ours moving into 2021. World-class hedge fund Knighthead Capital, for instance, holds the stock as its 4th largest holding amongst its $5.6 billion of discretionary assets under management.