Is JPMorgan Chase & Co. (JPM) The Best Buy Of The Big Banks?

Bank of America Corp (NYSE:BAC) and Citigroup Inc (NYSE:C) are two other megabanks. Over the past year these two peers have been struggling, with Bank of America Corp (NYSE:BAC)’s earnings on a trailing basis being particularly low. Wall Street analyst forecasts place Bank of America Corp (NYSE:BAC) at a valuation of 10 times forward earnings estimates, so it is actually valued at a premium to JPMorgan Chase in those terms even assuming the bank improves enough to hit analyst targets. Citigroup Inc (NYSE:C)’s forward earnings multiple is 9, so again JPMorgan Chase is well in line with its peers despite what has been a more stable performance over the last year. If there’s a value case for these banks, it relies on the fact that they are priced at significant discounts to the book value of their equity- 0.8x for Cit and 0.6x for B of A.

Wells Fargo & Co (NYSE:WFC) is valued at a premium to JPMorgan Chase, with a P/B ratio of 1.5- quite high, in our view- and even with great success in converting those assets into income trailing and forward P/Es of 12 and 11 respectively. Wells Fargo & Co (NYSE:WFC) does have a reputation as a safer bank, and its earnings growth has also been good, but we aren’t sure it deserves that much higher a valuation. We can also compare JPMorgan Chase to pure-play investment bank Goldman Sachs Group Inc (NYSE:GS). This bank’s last quarterly report showed a small increase in revenue, and only 7% earnings growth, compared to the first quarter of 2012. While the stock is close to value territory- for example, its forward P/E is 10- this isn’t a particularly low level compared to the other financial stocks we’ve considered here. In addition, JPMorgan Chase seems to be doing better- including in its own investment banking unit- and be valued more cheaply.

As a result we’d prefer JPMorgan Chase to both Wells Fargo and Goldman Sachs Group Inc (NYSE:GS). In addition, we think that Bank of America Corp (NYSE:BAC) is too dependent on improvements on its bottom line from what the company has recently been doing to be an attractive value stock, even given its low P/B. Citigroup Inc (NYSE:C) has been in a somewhat better situation, and it might be worth considering, but we still think that further research on JPMorgan Chase should be the first priority for investors interested in these financial stocks.

Disclosure: I own no shares of any stocks mentioned in this article.