JPMorgan Chase (NYSE:JPM) is one of the best big banks in the country, but does that mean its stock is a buy right now? Not necessarily.
To be clear, there’s a lot to like about JPMorgan Chase from the perspective of an investor. This shines through loud and clear when you look at its stock chart over the past year compared to the S&P 500.
Shares of the nation’s biggest bank by assets have outperformed the large-cap stock index by 12 percentage points since June of last year. This alone is impressive. But making it even more so is the fact that the S&P 500 has performed pretty well itself, up 16% over this stretch. Yet, that still pales in comparison to JPMorgan Chase’s 28% gain.
There are two primary explanations for this surge. In the first case, the unexpected outcome of last year’s presidential election led investors to assume that banks would soon make more money. On the campaign trail, after all, Donald Trump promised to reduce corporate income taxes and ease regulations in the financial services industry, both of which would allow more of JPMorgan Chase’s revenue to fall to the bottom line.
In the second case, as the Federal Reserve continues to raise interest rates, assuming that it does so, that would translate into higher net interest income at JPMorgan Chase. Earlier this year, its chief financial officer, Marianne Lake, said that the New York-based bank should see its full-year net interest income, the difference between its yield on earning assets and its cost of funds, increase by $4 billion compared to 2016. And that’s assuming rates don’t rise any further from here, which they could.
The net result is that analysts, commentators, and investors widely assume that JPMorgan Chase’s shares should continue to climb. Of the 29 analysts who have rated the bank’s stock and are tracked by Yahoo! Finance, 17 of them rate its shares either a buy or a strong buy. Meanwhile, 11 rate it a hold, while only one recommends that investors should sell JPMorgan Chase’s stock.
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Analysts’ general optimism toward JPMorgan Chase also comes through in their consensus price target. The average analyst has a $94.13 target on JPMorgan Chase, which implies a 13% upside from today’s price of $83.18.
All of this seems to bode well for the bank. Yet, I’d caution investors to tread carefully in this space. As I’ve already noted, JPMorgan Chase’s shares have rallied since the presidential election on the banks of hopes for tax reform and regulatory relief, both of which seem to have ground to a halt over the past few months.
Moreover, with the market in general at towering heights, it doesn’t seem unreasonable to think that a correction could soon be in order. When that would happen is anybody’s guess, but the landscape is littered with catalysts given the chaos and confusion in the nation’s capital.
In short, while I think JPMorgan Chase’s stock is a solid investment for any investor’s portfolio, I see little harm in waiting for a potential correction in its share price before diving in.