Take JPMorgan Chase to the Bank, But Skip Goldman Sachs

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The Occupy Wall Street movement — throngs of people living on the streets of cities large and small while protesting — is going viral. But the protesters aren’t the only ones fed up with Wall Street — furious, too, are financial stocks’ shareholders, as well as their employees, who are either poised to lose their jobs or to get lousy bonuses. One of these embattled institutions is JPMorgan Chase (NYSE:JPM), which posted less-disappointing-than-expected earnings Thursday — but is the house of Jamie Dimon a better investment than Goldman Sachs (NYSE:GS)?

JPMorgan reported a 4% drop in earnings for the third quarter of 2011 — much better than the 10% drop analysts had expected. JPMorgan blamed that 10% predicted drop — the biggest in more than two years — on the euro zone credit crisis and U.S. debt issues that it believes spoiled optimism for an economic recovery, according to Bloomberg.

As OWS protesters visited his Park Avenue apartment this week, Dimon was considering the business challenges facing the bank, including:

  • 30% lower trading revenue compared to the second quarter of 2011.
  • 50% less investment banking revenue thanks to a drop from $2 trillion in corporate bond issues in the first half of 2011 to $550 billion in the third quarter.
  • A 10% drop to $3.96 billion in third-quarter earnings estimated by 18 analysts surveyed by Bloomberg.

However, on Thursday morning, Dimon announced a higher-than-expected profit of $4.26 billion, or $1.02 per share — a dime per share above expectations. But JPMorgan revenue fell 11% to $24.4 billion as a result of a drop in corporate securities issuance, difficult trading conditions, narrower profit margins and the elimination of overdraft and other penalty fees, according to DealBook.

Meanwhile, Goldman Sachs — scheduled to report its third-quarter results next week — has suffered from a drop in trading business and said in July that it would cut about 1,000 jobs after its second-quarter drop in trading revenue was larger than analysts estimated. And Goldman’s third-quarter report is expected to contain its worst quarterly results since 2008 in the depths of the financial crisis.

Does this mean you should buy JPMorgan and avoid Goldman Sachs? Yes. Here’s why:

  • JPMorgan: Shrinking, highly profitable company; cheap stock. JPMorgan’s revenues fell 3.9% to $62.3 billion in the past year, while its net income soared 81% to $18.6 billion — yielding a whopping 30% net profit margin. But its price/earnings-to-growth ratio is a cheap 0.55 (where a PEG ratio of 1.0 is considered fairly valued) with a P/E of 7.1 on earnings forecast to grow 13% to $5.18 in 2012.
  • Goldman Sachs: Shrinking, moderately profitable company; dirt-cheap stock. Goldman Sachs’ revenues are down 11% in the past year to $44.2 billion, and its net income tumbled 36.7% to $5.92 billion — earning a slimmer 13.4% net profit margin. And its PEG is a very inexpensive 0.1 on a P/E of 9.8 with earnings forecast to grow 103% to $14.76 in 2012.

JPMorgan’s up-and-down swings are less pronounced than Goldman, which depends heavily on trading for its profits.

If you’re looking for a less risky bet, JPMorgan is your stock. If you like to swing for the fences, it might be wise to wait until after Goldman Sachs’ stock drops even further so you can get the biggest return on a possible 2012 rebound.

Peter Cohan has no financial interest in the securities mentioned.


Article printed from InvestorPlace Media, https://investorplace.com/2011/10/occupy-jpmorgan-chase-but-skip-goldman-sachs-jpm-gs/.

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