Does The Best Financial Company Have Another Leg Up? – JPMorgan Chase & Co. (JPM), Goldman Sachs Group, Inc. (GS), Wells Fargo & Co (WFC)

Even though it has had quite a run lately (I wish I got in last year!), I think JPMorgan Chase still has a way to go.  The stock trades at a relatively cheap 9.4 times TTM earnings, and there is nice growth ahead, according to the consensus.  JPMorgan Chase is projected to earn $5.47 per share in 2013, increasing to $5.81 and $6.33 in 2014 and 2015, respectively.  This translates to an average forward growth rate of 7.6%, which I believe is very conservative.  As the U.S. economy continues its recovery, and Europe begins to straighten out its problems (hopefully), JPMorgan Chase should be able to capitalize on its increased market share, especially if credit conditions loosen a bit over the next few years.

For comparison’s sake, I’d like to take a brief look at two of JPMorgan Chase’s peers, Goldman Sachs Group, Inc. (NYSE:GS) and Wells Fargo & Co (NYSE:WFC).   I chose these due to Goldman Sachs Group, Inc. (NYSE:GS)’s focus on investment banking and Wells Fargo & Co (NYSE:WFC)’s focus on consumer banking.  I guess since other than JPMorgan, I consider these two to be best-in-breed in their respective areas; they make the most sense for comparisons.

As mentioned, Goldman Sachs Group, Inc. (NYSE:GS) is mostly focused on investment banking and management, and was largely unaffected by the financial crisis, and actually profited in 2007 from shorting mortgage-backed securities.  Goldman Sachs Group, Inc. (NYSE:GS) trades at a slightly higher valuation of 10.7 times earnings, however they are projected to grow at a much higher 12% forward rate.  I would caution would-be Goldman Sachs Group, Inc. (NYSE:GS) investors; however, as their high leverage ratio creates a higher risk level.

Wells Fargo & Co (NYSE:WFC), with assets of $1.42 trillion, is the fourth largest bank in the U.S, with banking, insurance, investment, mortgage, and consumer finance services.  Wells Fargo & Co (NYSE:WFC), like JPMorganChase, profited from the crisis by acquiring Wachovia, which more than doubled their assets.  Wells Fargo & Co (NYSE:WFC) is the best play as far as traditional banks go, in my opinion.  At 10.5 times earnings and 8% forward growth, they seem to be priced right, however until all of the bad assets inherited from Wachovia are worked out, there is still added risk here.

To sum it up, JPMorgan is the best-in-breed in the financial sector, and offers exposure to virtually all aspects of the financial services industry all over the world.  I believe that the acquisitions mentioned earlier were made for bargain prices, and the growth estimates for this company are conservative to say the least.

The article Does The Best Financial Company Have Another Leg Up? originally appeared on and is written by Matthew Frankel.

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