馃攳
JPM Stock Is JP Morgans Stock a Good Buy Today - YouTube
Channel: Learn to Invest - Investors Grow
[0]
hey YouTube I'm Jimmy in this video I'm
gonna walk through my analysis of
[4]
JPMorgan ticker simple JPM this
continues our series where we're
[9]
analyzing all 30 stocks in the Dow Jones
Industrial Average with the ultimate
[13]
goal of taking that analysis and
building a few great portfolios this is
[20]
a 17th video in that series you
can see a link in the description below
[23]
to all the other videos so Before we
jump into JP Morgan's business I
[27]
actually have a quick confession to make
I'm actually huge JP Morgan fan more
[31]
accurately I'm a huge Jamie Dimon fan
ever since I read his book called the
[35]
last man standing
it came out right after the Great
[38]
Recession and I had only been in the
industry for a few years and I was
[43]
trying to read and learn as much as I
could from all of the industry's top
[47]
investors his book or book about him was
one of the books that I've read I put a
[52]
link in the description below if you're
interested now it actually has very
[54]
little to do with investing more it was
more glorified him and his journey and
[59]
what he did in the Great Recession and
you know how he sort of catapulted JP
[65]
Morgan from where they were to you know
one of the dominant players in the
[68]
industry that being said I actually had
to go out of my way while doing the
[72]
research for this video and I had to be
careful not to let my liking the company
[76]
influence the research so really I what
I was trying to do is just focus on the
[80]
numbers so if at any point you catch me
fanboying during this entire video feel
[85]
free to go ahead and just ignore that
and I don't want to show any favoritism
[89]
or make any concessions because I
already like the company and I like
[93]
management so you catch it post in the
comments below feel free to just say
[98]
something funny about my fanboy that
being said let's jump into JP Morgan's
[101]
business so JP Morgan's business is
actually broken into four main segments
[105]
the largest is consumer and community
banking which represents about 45
[109]
percent of revenue and that segment is
their consumer business which targets
[115]
everyday people like you and me
think Chase Bank they offer credit cards
[120]
home lending they do consumer Wealth
Management they do personal checking and
[125]
savings business checking and savings
car loans things like that now this is
[128]
what the segments revenue looks like
going back to 2011 and as you could see
[132]
it's been a bit
volatile although it's been trending
[136]
higher these past few years now if we
zoom in to just the past three years and
[140]
we add net income we can see how net
income looks compared to revenue on top
[145]
of that we could throw a net income
margins and we can see that although net
[150]
income margins pulled back in this most
recent year they've been consistently in
[153]
let's say the 20% range now if we jump
back to the segments pie chart we can
[157]
see that the next largest segment is
corporate and investment banks and it's
[161]
about 34 percent of revenue now this
segment can be broken into two sub
[166]
segments market and investment services
and then banking banking can be broken
[171]
down into investment banks lending and
then they have their Treasury business
[175]
in there now most investment banks have
a Treasury business basically what they
[179]
do there is they go out and they bid for
they set the bidding prices for the
[184]
government bonds that they try to buy
each month so this whole segment is
[187]
where the help companies sell bonds they
bring companies public that does
[190]
underwriters they help with stock
offerings spin-offs things like that
[193]
here's a chart of a segments of revenue
going back to 2010 and as you can see in
[197]
2010 from 2010 to 2011 they had a big
park in revenue that's right around the
[203]
time when they bought Bear Stearns they
actually bought Washington Mutual at the
[206]
same time but bear stearns is the one
that would apply to this segment but
[210]
with the hue with such an enormous
disparity between 2010 and 2011 I'm
[214]
actually going to eliminate 2010 so we
can see what the more recent trend looks
[218]
like so now we could see there's a bit
of volatility in the revenue and we
[223]
actually saw the same thing when we
analyzed this segment over in our
[226]
goldman sachs video and if you remember
what we said in that video that was that
[230]
this segment is highly competitive and
with that competition often comes lower
[236]
margins and when we throw in net income
we can see that net income actually has
[241]
done fairly well relative to revenue
when we add the net profit margins we
[246]
can see that this division is doing
better than the low 20s we saw in the
[251]
retail banking segment so how are their
margins so good and the answer to that
[254]
is because they're awesome because this
is JP Morgan because Jamie died I'm just
[259]
getting us too far okay sticking with
reality for a moment if we look at
[263]
revenue we can see that revenue actually
hasn't done all that much over the past
[267]
years and I know that Goldman is having
a pretty good year
[270]
because if remember in the Goldman video
I mentioned that mergers and
[273]
acquisitions are up which in theory
should help this division so it'll be
[276]
interesting to see how this how 2018
shakes out for JP Morgan and with profit
[283]
margins at almost 30% this is a big
driver to the company's overall profit
[287]
margin so this will be an interesting
one to watch okay now back to the pie
[291]
chart and we can see it the next largest
segment is asset management at about
[295]
thirteen percent of revenue now the
asset management division is often
[299]
driven by assets under management and I
bring this up because there are two
[303]
primary ways to grow assets under
management one go out and raise more
[308]
money either from existing clients or
perhaps from new clients or to get good
[313]
returns more returns equals more assets
under management and I bring this up and
[318]
I think this is important because here's
a chart of revenue for this segment and
[321]
before we get too super excited about
this revenue chart remember that a lot
[325]
of this was done during this very long
bull run that the markets been on and I
[330]
all I went in this chart I went all the
way back to 2008 mostly because in 2008
[335]
the Great Recession happened and I think
it's important to point out that this
[338]
segments revenue was doing well quite
then Goldman Sachs and Morgan Stanley
[342]
did the similar thing but I remember
that time period and back then it was
[346]
very difficult to raise assets most
firms couldn't raise any assets and in
[351]
fact most firms were losing assets so
back then I was reading a lot of what
[356]
Jamie Dimon was putting it out and I was
always impressed with how they managed a
[361]
lot of what happened granted they got a
lot of good deals from the government
[364]
stuff like that but that's a you know
topic for a different video so overall I
[369]
think it's important to remember that
this revenue was driven largely by the
[372]
bull run so take that for what it's
worth now when we throw a net income to
[376]
this segment we can see that net income
has done fairly well over the past few
[379]
years and interestingly this segment
Falls in right in between the other two
[383]
segments when it comes to net income
margins okay so now jumping over the
[387]
commercial banking commercial banking
does a lot of different things they help
[390]
companies and governments raise money
they finance real estate deals they do
[395]
some lending they do some Investment
Banking they do some asset management so
[400]
there they do
little bit of everything now look at
[402]
this segments revenue we could see that
it's done fairly well when we zoom into
[406]
the past few years and we add net income
we could see that their net income
[409]
margins are amongst the best of all
their segments they're also the smallest
[413]
so I'm not sure how much this is going
to help things with that being said and
[418]
that let's jump over overall revenue for
JPMorgan and see how that looks and as
[422]
we could see it's actually been somewhat
flat since 2009 and this isn't far off
[428]
from what we saw when we analyzed
Goldman Sachs so when we throw in that
[431]
income we could say that they've
actually done fairly decent there the
[434]
blue bars we could see that they climbed
from 2008 to 2012 then they pull back a
[439]
bit and they started moving higher again
last year net profit margins were about
[443]
25% which makes sense when you think
about how each segment performed overall
[448]
so question is what do we think JP
Morgan's worth today now you may
[453]
remember in the Goldman Sachs video that
we did if you saw it if not there's a
[457]
link in the description below well you
may remember that we looked at something
[460]
called the sustainable growth rate the
sustainable growth rate takes the return
[464]
on equity and multiplies it by the
retention ratio retention ratio is how
[469]
much the company keeps after paying out
dividends how much it retains the result
[474]
is what they call the sustainable growth
rate which in theory demonstrates how
[479]
fast a company can grow without having
to raise additional capital assuming
[484]
everything stays the same
well Goldman Sachs came in at about
[488]
three point four three Morgan Stanley
came in at five point eight one and JP
[492]
Morgan came in at about six point five
six so in theory what this sustainable
[498]
growth rate tells us is that JP Morgan
can grow faster than their peers this
[503]
tells me at first glance that JP Morgan
should be trading at a premium to those
[508]
companies okay so that's good to know
now management has also stated that they
[514]
believe that tangible book value is the
best measure is the best way to measure
[519]
the company and this chart here this
chart actually came from Jamie diamonds
[523]
most recent shareholder letter from the
end of 2017 the Green Line is the stock
[528]
price and the blue bars are tangible
book value now one thing you might
[532]
notice is that in 2017
there's
[534]
to be a significant jump in the average
stock price relative to the jump in the
[540]
tangible book value now if you're
wondering the difference between a
[543]
tangible book value and book value well
tangible book value excludes intangible
[548]
assets like goodwill and if you're
wondering if you're wondering book value
[553]
if that's the same thing as shareholder
equity it pretty much is yes so if you
[557]
look at the financial statements you'll
see shareholder equity that's the same
[560]
thing as book value so for me since this
is where the company is focusing on what
[564]
they believe will ultimately drive the
value of the company I think it might
[568]
makes sense for us to try to price the
stock using tangible book value so if
[572]
the company views their goal as being
one to grow tangible book value well we
[577]
should only pay a sum multiple of
tangible book value that being said this
[581]
chart here is price to tangible book
value per share going back to 2009 this
[587]
is the multiple based on today's current
price is about a hundred three dollars
[590]
per share
today's tangible book value per share is
[593]
one point eight eight X that means that
it is one it is take a tangible book
[599]
value multiply it by one point eight
eight X you end up with a hunt on $3.00
[602]
price now using that one point eight at
X that would fall about there on the
[606]
chart
that being said I'm not sure it makes
[609]
sense to pay that much I mean if you
compare it to the very tops of what
[613]
historically has been price to 10 book
value
[616]
we're almost there I'm not sure we want
to pay that much if you look at the
[620]
average of price to tangible book value
it's closer to the one point five mark
[624]
over the past ten years okay now that's
good to know but let's see what peers
[628]
are trading at so if we look at Goldman
Sachs we can see that their current
[633]
price to tangible book values about
point nine four X now that's interesting
[637]
because that means if you were to buy a
share of goldman sachs see that should
[640]
be paying less than tangible book value
that's good to know
[643]
goldman sachs comes in at about one
point one six x and then like I said JP
[648]
Morgan comes at one point eight eight X
now I'm not that surprised that JP
[652]
Morgan would come in higher than the
other two companies since we saw a very
[656]
similar story when it came to the
sustainable growth rate
[659]
okay so what's JPM stock worth today
well it's already trading at a premium
[664]
that we can see so it's tough to move
that premium much higher relative
[668]
to pierce since it looks like it's
already pretty it already has a pretty
[671]
good gap if we look at the past year
over the past four quarters well the
[675]
average was about 2x well if we multiply
that 2x by the 182 billion dollars of
[681]
tangible book value divide that by the
number shares outstanding we get a fair
[685]
value of about $110 when I look at
analyst reports well they use 2.25 X
[691]
priced a tangible book value and that
would give us a fair value of about 124
[696]
dollars a share personally I think we
should be at most
[700]
sticking with the past year's average
which would be about 2x but on a
[705]
personal level I actually think it's
better to stick closer to the 10-year
[708]
average call it 1.5 X but what do you
think another thing worth considering is
[714]
that JP Morgan's current dividend yields
a bit over 3% so I think it's very
[717]
possible that based on that the stock
could end up in the dividend portfolio
[721]
growth maybe management has stated the
fact that they're trying to grow
[726]
tangible book value by at least double
digits per year for the next few years
[731]
so for me maybe that makes sense from a
growth perspective from a value
[735]
perspective I have trouble seeing it as
much as I like management and I like the
[740]
pedigree of JP Morgan as an as a
business I really think that we need to
[745]
remain disciplined if we're going to buy
companies for our ideal portfolios I
[750]
wouldn't want to overpay for it if this
company does grow book value but let's
[754]
say 15% a year and we jump in and bottom
right now well what is the average price
[760]
to tangible book value fell to the
10-year average if we bought it right
[764]
now we would still lose money even if
they grew tangible book value by 10 to
[768]
15% a year to me that doesn't make a lot
of sense but what do you think do you
[774]
think JPMorgan belongs in any of our
portfolios today I know that we're not
[779]
going to build them until we're done
with the analysis we've only got a you
[781]
know about a dozen or so companies left
but let me know what you think in the
[785]
comments below which portfolios if any
would you put this in and if you haven't
[789]
done so already hit the subscribe button
thanks for sticking with me all the way
[793]
here in the video and I'll see you in
the next video thanks
Most Recent Videos:
You can go back to the homepage right here: Homepage