JPMorgan Chase: Buy, Sell or Hold?

For many investors and not a few analysts, JPMorgan Chase (JPM 0.67%) it is the best in the category of large US banks. Led by longtime CEO Jamie Dimon, the company is a powerhouse in numerous segments of banking, including but not limited to commercial lending, investment banking and credit card issuance.

In fact, its stock is the best year-to-date performer among the big four U.S. banks, which includes Bank of America, City Groupand Wells Fargo. He also happens to be the only member of the quartet currently outselling the S&P 500 index so far this year. Its encouraging fundamental performance puts JPMorgan Chase at the top of these rankings, but there have been a hiccup or two lately. Is its stock worth adding to your portfolio regardless?

Size matters

Much of JPMorgan Chase’s prominence comes from sheer size. It’s at the top of the banking heap in this country in terms of basic fundamentals like revenue and total assets, and its stock is clearly No. 1 as measured by market cap. It also has the largest footprint with over 5,100 branches across the country.

Relatively high interest rates can squeeze banks, leading to less lending — a key business for lenders. However, the high rates that have been a staple of the US economy in recent years have not hurt JPMorgan Chase’s business. It still manages to post solid growth in certain key segments.

Its second-quarter results, released in mid-July, were skewed by a large ($7.9 billion) sale of Visa stock on its books. That helped net revenue grow 22% year-over-year to $50.2 billion and net income advance 25% to more than $18.1 billion. However, the bank managed to beat analysts’ average estimates on both the top and bottom lines.

Many fingers in many pies

The nice thing about JPMorgan Chase is the diversification of its business, which protects against the inevitable cyclical downturns in traditional lending activities. The company has committed resources to some of the most resilient and profitable financial services segments and continues to reap the rewards.

The company’s commercial and investment banking (CIB) segment has been supported by still robust capital markets, where it is a prominent player in many activities. CIB’s revenue rose 9 percent to nearly $18 billion, thanks to a 46 percent increase in its investment banking unit, which brought in $2.5 billion. That filtered down to net income of just under $5.9 billion for CIB, good enough for an 11% gain. It also accounted for nearly a third of the company’s overall profit for the period.

Asset and wealth management, meanwhile, tends to be a fairly profitable endeavor if done right. Over the years, JPMorgan Chase has expanded this business effectively and continues to increase revenue and profitability. Its value for the quarter rose 6% to nearly $5.3 billion, with net profit rising 3% to nearly $1.3 billion.

The second quarter was just the latest in a string of impressive results for the company. The downside of sustained outperformance, however, is that it raises expectations to the point where they may not be realistic. In mid-September, management felt compelled to temper those expectations, particularly for growth in net interest income (NII), a key measure of profitability for banks. JPMorgan Chase chief operating officer Daniel Pinto said the average analyst estimate of $90 billion in NII for the full year 2025 was “not very reasonable.”

Don’t worry about the future

What might be more reasonable is a decline in fundamentals next year. Interest rates will almost certainly fall by the end of 2024 as inflation appears to be melting. Although lower rates are an advantage in a sense for a bank because they increase the demand for loans, they ultimately reduce the NII. That’s what management anticipates.

Right now, analysts are still modeling healthy gains in revenue and profitability this year, though again that’s skewed by Visa’s recent stock selloff. Such an event on that scale is unlikely to happen again in 2025, certainly an additional key reason those experts expect a nearly 4% year-over-year decline in revenue for next year and a 7% decline of earnings per share.

Personally, I don’t think this puts JPMorgan Chase on the ignore (or even sell) list. Given its recent torrid growth and its potential always ready for more, I wouldn’t be at all surprised if the company does better than analysts expect. Those banking-adjacent segments are large and growing, and the company is doing a good job of keeping them hot. Meanwhile, from a valuation standpoint, the stock feels like a bargain; The forward P/E is only 12, modest even when factoring in expected 2025 declines.

Ultimately, my view is that investors are being unnecessarily wary of JPMorgan Chase these days. As long as the US economy continues to hum, so will the bank. Even if the economy isn’t doing so well, management will find a way to make a solid dollar. The bank’s stock is undoubtedly a buy in my opinion.