JPMorgan Chase & Co. (NYSE:JPM) is another major banking stock, but expects sales to be flat this year following a 5% decline in 2011. JPMorgan is one of the better performing banks, up nearly 30% in 2012, although net interest income is expected to fall 7.0% this year. This comes despite expected 1.0% loan growth and 2% growth in interest-earning assets. Although JPMorgan’s valuation appears cheap at 0.9x book value, we believe its growth prospects warrant such a valuation. The bank is expected to grow 5-year EPS at only 7% annually, and 2013 should bring a 2% decline in net interest income and 3% fall in non-interest income. Ken Fisher – founder of Fisher Asset Management – did up his stake in JPMorgan over 125% last quarter (check out Ken Fisher’s biggest bets), so there’s clearly some support from the smart money.
UBS AG (NYSE:UBS) expects revenues to be down this year, but trades at a P/B of 1.1x – on the high end of the industry. Investment banking revenues are expected to be a smaller portion of UBS’s overall top line, which will help the company diversify away from volatile trading revenues. UBS is expected to cut its head count by around 16% by the end of 2015 to refocus on its core investment banking operations. The scale of its wealth management operations should also continue to facilitate comparatively wide margins, but we believe the stock’s valuation already reflects its turnaround capabilities. Billionaire Jim Simons is the top fund owner in UBS of those we track during 3Q (check out Jim Simons’ biggest bets).
Last but certainly not least, Goldman Sachs Group, Inc. (NYSE:GS) is one of the top banking stocks up close to 40% in 2012. Unlike many of the other banks, Goldman is expected to see revenues up 12% this year, as client risk and trading demand increases. Goldman also trades at only 0.9x book value and is one of the more internationally diverse companies in the global capital market, and we believe its investment banking capability remains best-in-class.
Still, Goldman’s equity trading and underwriting income is weaker than average, but we believe the bank could possess upside potential as this industry rebounds. Goldman has the name recognition that should help drive its 30%+ long-term EPS growth, making it another investment bank that we would keep an eye on. Ken Griffin – founder of Citadel Investment Group – is one of Goldman’s big-name investors (check out Ken Griffin’s newest picks).
To recap: we see Morgan Stanley as one of the top value plays in the industry, trading at only 0.6x book value. This, coupled with Morgan’s robust expected growth rate, makes us consider the stock as a ‘growth at a reasonable price’ play as well.
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