JPM Stock Is JP Morgans Stock a Good Buy Today


hey YouTube I’m Jimmy in this video I’m
gonna walk through my analysis of JPMorgan ticker simple JPM this
continues our series where we’re analyzing all 30 stocks in the Dow Jones
Industrial Average with the ultimate goal of taking that analysis and
building a few great portfolios this is a 17th video in that series you
can see a link in the description below to all the other videos so Before we
jump into JP Morgan’s business I actually have a quick confession to make
I’m actually huge JP Morgan fan more accurately I’m a huge Jamie Dimon fan
ever since I read his book called the last man standing
it came out right after the Great Recession and I had only been in the
industry for a few years and I was trying to read and learn as much as I
could from all of the industry’s top investors his book or book about him was
one of the books that I’ve read I put a link in the description below if you’re
interested now it actually has very little to do with investing more it was
more glorified him and his journey and what he did in the Great Recession and
you know how he sort of catapulted JP Morgan from where they were to you know
one of the dominant players in the industry that being said I actually had
to go out of my way while doing the research for this video and I had to be
careful not to let my liking the company influence the research so really I what
I was trying to do is just focus on the numbers so if at any point you catch me
fanboying during this entire video feel free to go ahead and just ignore that
and I don’t want to show any favoritism or make any concessions because I
already like the company and I like management so you catch it post in the
comments below feel free to just say something funny about my fanboy that
being said let’s jump into JP Morgan’s business so JP Morgan’s business is
actually broken into four main segments the largest is consumer and community
banking which represents about 45 percent of revenue and that segment is
their consumer business which targets everyday people like you and me
think Chase Bank they offer credit cards home lending they do consumer Wealth
Management they do personal checking and savings business checking and savings
car loans things like that now this is what the segments revenue looks like
going back to 2011 and as you could see it’s been a bit
volatile although it’s been trending higher these past few years now if we
zoom in to just the past three years and we add net income we can see how net
income looks compared to revenue on top of that we could throw a net income
margins and we can see that although net income margins pulled back in this most
recent year they’ve been consistently in let’s say the 20% range now if we jump
back to the segments pie chart we can see that the next largest segment is
corporate and investment banks and it’s about 34 percent of revenue now this
segment can be broken into two sub segments market and investment services
and then banking banking can be broken down into investment banks lending and
then they have their Treasury business in there now most investment banks have
a Treasury business basically what they do there is they go out and they bid for
they set the bidding prices for the government bonds that they try to buy
each month so this whole segment is where the help companies sell bonds they
bring companies public that does underwriters they help with stock
offerings spin-offs things like that here’s a chart of a segments of revenue
going back to 2010 and as you can see in 2010 from 2010 to 2011 they had a big
park in revenue that’s right around the time when they bought Bear Stearns they
actually bought Washington Mutual at the same time but bear stearns is the one
that would apply to this segment but with the hue with such an enormous
disparity between 2010 and 2011 I’m actually going to eliminate 2010 so we
can see what the more recent trend looks like so now we could see there’s a bit
of volatility in the revenue and we actually saw the same thing when we
analyzed this segment over in our goldman sachs video and if you remember
what we said in that video that was that this segment is highly competitive and
with that competition often comes lower margins and when we throw in net income
we can see that net income actually has done fairly well relative to revenue
when we add the net profit margins we can see that this division is doing
better than the low 20s we saw in the retail banking segment so how are their
margins so good and the answer to that is because they’re awesome because this
is JP Morgan because Jamie died I’m just getting us too far okay sticking with
reality for a moment if we look at revenue we can see that revenue actually
hasn’t done all that much over the past years and I know that Goldman is having
a pretty good year because if remember in the Goldman video
I mentioned that mergers and acquisitions are up which in theory
should help this division so it’ll be interesting to see how this how 2018
shakes out for JP Morgan and with profit margins at almost 30% this is a big
driver to the company’s overall profit margin so this will be an interesting
one to watch okay now back to the pie chart and we can see it the next largest
segment is asset management at about thirteen percent of revenue now the
asset management division is often driven by assets under management and I
bring this up because there are two primary ways to grow assets under
management one go out and raise more money either from existing clients or
perhaps from new clients or to get good returns more returns equals more assets
under management and I bring this up and I think this is important because here’s
a chart of revenue for this segment and before we get too super excited about
this revenue chart remember that a lot of this was done during this very long
bull run that the markets been on and I all I went in this chart I went all the
way back to 2008 mostly because in 2008 the Great Recession happened and I think
it’s important to point out that this segments revenue was doing well quite
then Goldman Sachs and Morgan Stanley did the similar thing but I remember
that time period and back then it was very difficult to raise assets most
firms couldn’t raise any assets and in fact most firms were losing assets so
back then I was reading a lot of what Jamie Dimon was putting it out and I was
always impressed with how they managed a lot of what happened granted they got a
lot of good deals from the government stuff like that but that’s a you know
topic for a different video so overall I think it’s important to remember that
this revenue was driven largely by the bull run so take that for what it’s
worth now when we throw a net income to this segment we can see that net income
has done fairly well over the past few years and interestingly this segment
Falls in right in between the other two segments when it comes to net income
margins okay so now jumping over the commercial banking commercial banking
does a lot of different things they help companies and governments raise money
they finance real estate deals they do some lending they do some Investment
Banking they do some asset management so there they do
little bit of everything now look at this segments revenue we could see that
it’s done fairly well when we zoom into the past few years and we add net income
we could see that their net income margins are amongst the best of all
their segments they’re also the smallest so I’m not sure how much this is going
to help things with that being said and that let’s jump over overall revenue for
JPMorgan and see how that looks and as we could see it’s actually been somewhat
flat since 2009 and this isn’t far off from what we saw when we analyzed
Goldman Sachs so when we throw in that income we could say that they’ve
actually done fairly decent there the blue bars we could see that they climbed
from 2008 to 2012 then they pull back a bit and they started moving higher again
last year net profit margins were about 25% which makes sense when you think
about how each segment performed overall so question is what do we think JP
Morgan’s worth today now you may remember in the Goldman Sachs video that
we did if you saw it if not there’s a link in the description below well you
may remember that we looked at something called the sustainable growth rate the
sustainable growth rate takes the return on equity and multiplies it by the
retention ratio retention ratio is how much the company keeps after paying out
dividends how much it retains the result is what they call the sustainable growth
rate which in theory demonstrates how fast a company can grow without having
to raise additional capital assuming everything stays the same
well Goldman Sachs came in at about three point four three Morgan Stanley
came in at five point eight one and JP Morgan came in at about six point five
six so in theory what this sustainable growth rate tells us is that JP Morgan
can grow faster than their peers this tells me at first glance that JP Morgan
should be trading at a premium to those companies okay so that’s good to know
now management has also stated that they believe that tangible book value is the
best measure is the best way to measure the company and this chart here this
chart actually came from Jamie diamonds most recent shareholder letter from the
end of 2017 the Green Line is the stock price and the blue bars are tangible
book value now one thing you might notice is that in 2017
there’s to be a significant jump in the average
stock price relative to the jump in the tangible book value now if you’re
wondering the difference between a tangible book value and book value well
tangible book value excludes intangible assets like goodwill and if you’re
wondering if you’re wondering book value if that’s the same thing as shareholder
equity it pretty much is yes so if you look at the financial statements you’ll
see shareholder equity that’s the same thing as book value so for me since this
is where the company is focusing on what they believe will ultimately drive the
value of the company I think it might makes sense for us to try to price the
stock using tangible book value so if the company views their goal as being
one to grow tangible book value well we should only pay a sum multiple of
tangible book value that being said this chart here is price to tangible book
value per share going back to 2009 this is the multiple based on today’s current
price is about a hundred three dollars per share
today’s tangible book value per share is one point eight eight X that means that
it is one it is take a tangible book value multiply it by one point eight
eight X you end up with a hunt on $3.00 price now using that one point eight at
X that would fall about there on the chart
that being said I’m not sure it makes sense to pay that much I mean if you
compare it to the very tops of what historically has been price to 10 book
value we’re almost there I’m not sure we want
to pay that much if you look at the average of price to tangible book value
it’s closer to the one point five mark over the past ten years okay now that’s
good to know but let’s see what peers are trading at so if we look at Goldman
Sachs we can see that their current price to tangible book values about
point nine four X now that’s interesting because that means if you were to buy a
share of goldman sachs see that should be paying less than tangible book value
that’s good to know goldman sachs comes in at about one
point one six x and then like I said JP Morgan comes at one point eight eight X
now I’m not that surprised that JP Morgan would come in higher than the
other two companies since we saw a very similar story when it came to the
sustainable growth rate okay so what’s JPM stock worth today
well it’s already trading at a premium that we can see so it’s tough to move
that premium much higher relative to pierce since it looks like it’s
already pretty it already has a pretty good gap if we look at the past year
over the past four quarters well the average was about 2x well if we multiply
that 2x by the 182 billion dollars of tangible book value divide that by the
number shares outstanding we get a fair value of about $110 when I look at
analyst reports well they use 2.25 X priced a tangible book value and that
would give us a fair value of about 124 dollars a share personally I think we
should be at most sticking with the past year’s average
which would be about 2x but on a personal level I actually think it’s
better to stick closer to the 10-year average call it 1.5 X but what do you
think another thing worth considering is that JP Morgan’s current dividend yields
a bit over 3% so I think it’s very possible that based on that the stock
could end up in the dividend portfolio growth maybe management has stated the
fact that they’re trying to grow tangible book value by at least double
digits per year for the next few years so for me maybe that makes sense from a
growth perspective from a value perspective I have trouble seeing it as
much as I like management and I like the pedigree of JP Morgan as an as a
business I really think that we need to remain disciplined if we’re going to buy
companies for our ideal portfolios I wouldn’t want to overpay for it if this
company does grow book value but let’s say 15% a year and we jump in and bottom
right now well what is the average price to tangible book value fell to the
10-year average if we bought it right now we would still lose money even if
they grew tangible book value by 10 to 15% a year to me that doesn’t make a lot
of sense but what do you think do you think JPMorgan belongs in any of our
portfolios today I know that we’re not going to build them until we’re done
with the analysis we’ve only got a you know about a dozen or so companies left
but let me know what you think in the comments below which portfolios if any
would you put this in and if you haven’t done so already hit the subscribe button
thanks for sticking with me all the way here in the video and I’ll see you in
the next video thanks

22 Replies to “JPM Stock Is JP Morgans Stock a Good Buy Today”

  1. Great video, as ever, but I do have one criticism: GS and MS aren't peers of JPM. At least, not entirely. I think it would be more useful to compare JPM to BAC, C, or WFC, as they're far more similar in size and company structure. My guess is that JPM would still be trading at a premium to them, and I'm not disputing your conclusion. Just my 2 cents.

  2. Thanks Jimmy, I'm learning a lot from these videos. Now that Goldman is trading below book value, would you change your opinion (from your Goldman video) & rank it a buy?

  3. I have a suggestion, how about Kraft Heinz? It is getting to a very good price, solid company, there is a problem of consumer behavior changing, but the 3g group are outstanding managers, and price/earnings and dividends are getting very attractive.

  4. It's great company. It's been replacing front office staff with robots. And software engineers who built the bots with Indian. Indian First. I'd buy JPM share: last robot standing. Jamie is the great captin behind the Great Outsourcing to India.

  5. Very helpful video! Thank you! Would be nice if you could kinda slow down your talking a little bit. Your voice can be kinda stressful to listen too, its like your anxious to breathe or cant catch your breathe when your talking, maybe your just really excited 🙂

  6. So, by accident, I came across something called a Trust Preferred Security from Bank of America with NYSE sticker mer-k… I don't understand what this is but the 7 year price chart is an absolute flat line for price per share and the return is over 6%.. This sounds like a perfect investment going into a bear market for a new retiree like me… Your analysis of stocks blows me away and if you could give me a few minutes to explain if my plans to purchase this has fatal flaws either by value or tax repurcusians would be greatly appreciated…I think many others would be interested in this find….thank you, thank you, thank you for every video you make…. Gary

  7. Wonderful channel, just subbed.
    would be great also a series on some nasdaq stocks.
    greetings from Italy

  8. I worked for bear sterns when JP acquired us, and wamu followed shortly after. Stock for jp was dirt cheap, glad they matched. Company dividends are constant, stable and growing safely. Think at .80 right now. I was lucky enough to start employee purchasing at around $23-24 a piece back in 2008/9

  9. Your presentation and video format is simply the best. You have helped develop my financial understanding unlike anything else I’ve tried. Thank you.

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