There's a reason the country's single biggest banking name is holding up against a headwind.
In theory, this isn't a great time to own bank stocks. Although high interest rates make lending money a more profitable business, the persistent inflation these high rates are meant to curb is bad for the economy, and it crimps demand for most basic banking services.
In reality, however, most banks (and their stocks) are doing well. Shares of JPMorgan Chase(JPM -1.21%) logged a gain of more than 21% during the first half of this year, for instance, versus the S&P 500's gain of less than 17%.
What gives? And is more of the same market-beating bullishness in the cards for this particular bank?
Is JPMorgan Chase hitting a headwind?
JPMorgan Chase is the nation's biggest bank, with $3.5 trillion in assets. Its JPMorgan arm mostly offers corporate banking and investment banking services to institutions, while Chase is geared toward consumers. Between the two, the company casts a wide net.
A large net doesn't inherently make a bank a better performer. In the case of JPMorgan Chase, though, it certainly doesn't hurt. Last year's revenue growth of 23% drove a 32% year-over-year improvement in net income despite the economic headwinds.
And that growth continued into the first quarter of this year. Investment banking and net interest income from ordinary lending have been particularly bright spots of late.
Investors with good memories might not readily agree. Although the first quarter's net interest income of $23.1 billion was in line with estimates and up 11% year over year, it was also down from the fourth quarter's lofty comparison. The bank's forecast for full-year net interest income of about $90 billion also remained unchanged rather than being lifted as expected. Expenses remain high as well.
Investors flinched at the news, sending the bank's stock down in the wake of the report.
Rethinking the first-quarter report
There's a reason that weakness didn't last, though. Investors recognized that the chief challenges currently are predictably cyclical, and they used that temporary pullback as an opportunity to step into one of banking's most proven, resilient names. The market also reconsidered the possibility that JPMorgan's forecast was just unnecessarily conservative.
And as it turns out, those optimists were right. Immediately before the bank's Investor Day in May, JPMorgan raised its 2024 outlook for net interest income that had proved so problematic just a little more than a month earlier.
It wasn't a huge increase; the bank says it's only looking for $91 billion in net interest income this year. Chief Executive Officer Jamie Dimon even made a clear attempt to keep expectations tamped down, warning that he's only "cautiously pessimistic" on the economy.
Even the modest uptick in interest income projection speaks volumes, though, while Dimon's concerns about the economy mostly fell on deaf ears. The bank's stock is well up in the meantime, boosted by the company's plans to invest more in hiring innovative, revenue-focused bankers. The company is also committing more money to private credit and a range of banking technologies, including artificial intelligence, further stoking bullishness for JPMorgan Chase stock.
More upside awaits buy-and-hold investors
And yet, there's still room for more upside for any investors interested in diving in.
As well as shares of JPMorgan Chase have performed since mid-2022 (more than doubling during that time), this stock remains shockingly cheap. Shares are valued at less than 13 times this year's expected per-share earnings, and only about 12 times next year's estimated per-share profit. That's low, even by the financial sector's usual standards.
Bolstering this stock's potential upside is a healthy dividend yield, and an even healthier dividend pedigree. Newcomers will be plugging into a forward-looking yield of 2.24%, based on a dividend that has now been raised for 14 consecutive years.
These weren't tepid increases, either. From 2014's quarterly payment of $0.40 per share to the current payout of $1.25, this dividend has grown at an annualized pace of 12%. Aggressive stock buybacks have helped, too.
JPM dividend data by YCharts.
More important to would-be shareholders, this continual value building isn't apt to end anytime soon, if ever.
That's because while sheer size isn't everything, it's certainly something when handled as well as JPMorgan Chase has. Being the biggest name in any business tends to make it the go-to option for many prospective customers.
And so, in addition to the investments the company is making in its institutional side, it's also aiming to expand its retail-banking footprint. Consumer banking chief Jennifer Roberts told investors in May that Chase intends to build 500 new bank branches during the coming three years, greatly adding to its existing 4,900 branches.
Given its track record of success, led by a slew of industry veterans -- six of whom are in the running to replace Dimon as CEO when he steps down -- it's difficult to argue that these plans won't pan out as hoped.
Yes, JPMorgan Chase stock is a buy
JPMorgan Chase stock is certainly apt to ebb and flow, but that's nothing new or unusual. However, it's still a buy even after its heroic run-up.
Just bear in mind this company is best suited to be a true long-term holding, making any short-term volatility mostly irrelevant.
Also note that JPMorgan Chase will be reporting its second-quarter numbers on July 12. Although it won't matter much in the long run, the risk-versus-reward scenario for interested buyers favors waiting until after those numbers are released.
You may end up paying a higher price by holding off, but the prospect of a short-lived post-earnings dip is just strong enough to merit some patience. After all, we've already seen the bank reverse a pessimistic forecast once this year. It could easily do so again.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.
