In this segment of Using the Value Line Report, we will be taking a closer look and comparing two of the most prominent and successful financial services monoliths in the United States: JPMorgan Chase & Co. (JPM -Free JPMorgan Chase Stock Report) and The Goldman Sachs Group, Inc. (GS - Free Goldman Sachs Stock Report). These two goliaths of the investment banking arena both have storied histories that date back to the early 19th century and were among the institutions at the forefront during the dawn of the investment banking age (J.P. Morgan as a stand-alone entity, prior to the merger with Chase Bank). In this review, we will take a quick look at both companies’ respective business models and consider various criteria that make the equities appealing investment prospects, as well as the factors that may give investors cause for concern.
Notably, one should take into consideration that, while JPMorgan has been synonymous with investment banking for more than a century, following its merger with Chase Bank, consumer and commercial banking became roughly half of the company’s business. Meanwhile, although at the height of the most recent recession, Goldman agreed to “officially” become a bank holding company (some say as a means to gain access to TARP funds, while others contend that the decision came at the behest of the Treasury Department), the company operates almost entirely as an investment banking firm. This explains why, although Goldman and JPMorgan’s operations are quite similar in many respects, the companies fall into separate industries: Goldman is in the Securities Brokerage Industry and JPMorgan is in the Bank Industry. A quick look at each company’s Blurb offers further insight into each outfit’s specific operations and the markets they cater to. Moreover, the respective pages are quite different, as Goldman’s page is tailored for a securities investment-focused business model, while JPMorgan’s page is tailored for a consumer/corporate/commercial banking business model. This is clearly apparent in the Statistical Arrays, where the Historical Financial Data and Financial Estimates are located.
Those differences aside, we will assume that investors want to take the most direct approach to determining these stocks’ potential for capital gains, both over the near-term and long-term horizons. With this in mind, depending on whether or not an investor is looking for a momentum play or a buy-and-hold opportunity, there are specific metrics on the page that offer the best insight into a stock’s compatibility with either investment strategy.
First, we will look at the short-term or year-ahead price performance potential of both equities, which is determined by the Timeliness ranking system and displayed in the Ranks box at the top left-hand corner of the page. A look at these numbers reveals that GS is ranked a 2 (Above Average), versus JPM’s rank of 3 (Average). This suggests that GS shares are expected to outpace the broader market averages over the next six to 12 months, while JPM stock is expected to merely mirror or perform in line with those averages over the same span. Therefore, momentum accounts would likely be more inclined to consider GS at first glance.
On the other hand, a more patient investor seeking to buy and hold a security over the long-term would be better served by focusing on the 3- to 5-year Projections box located just below the Ranks box. In this section of the page, investors can see the expected Target Price Range of a stock over the next 3 to 5 years, as well as the expected percentage gain from the current price and the total return potential, which includes any income or dividend distributions over that span. Analysis of this data for each of these companies reveals that, again, GS appears to be the more favorable option, as both its potential gain percentages and its total return potential exceed those of JPM. (Note: the spread on these data points have narrowed since the most recent Value Line reports, owing to GS’ more substantial stock price gain since our October review). Hence, even though GS is a much pricier stock, it offers more potential for appreciation over the next 3 to 5 years. Furthermore, shifting one’s attention to the top-center of these pages where the Price/Earnings Ratios are located, it becomes apparent that, yet again, GS seems like the more attractive investment option, as its P/E multiple of 9.8x earnings is less than JPMorgan’s at 13.8x earnings (as of the most recent Value Line reports). This indicates that GS has a more appealing valuation at this juncture.
Lastly, when considering financial condition, both companies are fairly equally matched, as each has a high mark for Financial Strength (A) and a Safety rank of 3 (Average). Thus, all things being equal, it seems that GS is a moderately more appealing investment choice for both the near- and long-term time frames. However, for those seeking income, JPM’s dividend yield is far superior to that of GS.
All told, while there are several factors that contribute to investment decisions, the Value Line page offers a wealth of insightful information that can effectively guide an investor toward his/her ideal objective.
At the time of this article’s writing, the author did not have positions in any of the stocks mentioned.