Vestact steered its clients towards buying JP Morgan shares in November 2017. Broadly speaking, we believe that large US banks are set to benefit from stronger economic growth, rising interest rates, increased efficiency, less paperwork, lighter regulations, fewer branches, better use of technology and thus fatter margins. JP Morgan is the biggest and best US bank.
The company reported second quarter numbers on Friday last week. It delivered earnings of $2.29 per share, better than the consensus expectation which was $2.22 per share. Quarterly revenue came in at $27.8 billion.
CEO Jamie Dimon sees "good global economic growth, particularly in the U.S." He said that loan growth is solid and he expects to see margin expansion, although he noted that global competition is getting stronger. They enjoyed double digit growth in client investment assets, card sales and merchant processing volumes. Capital markets were "open and active", leading to strong fee and markets revenue performance. He made special mention on the national rollout of their all-mobile bank, Finn. There were hikes to both the dividend and the share buyback plan.
So far our theory of improved profitability is playing out, but only to a modest degree. There is more to come. In response to these results the JP Morgan share price rose by 4% on Monday, which is a good sign. The stock still only trading on an earnings multiple (price to earnings ratio) of 13.7 times. That is still way below where it should be, in my view. Keep holding on to this one, its best days are ahead.