Buy This, Not That: Should You Bank On JPM or BAC?

Shah Gilani|October 16, 2024

It’s earnings season yet again.

This week, we’ve got some of the market’s biggest bellwethers sharing their Q3 results… and potentially moving markets.

That’s right. It’s time to check in on the health of America’s biggest banks…

This is a sector that’s very important to watch – especially as rates begin to come down. And the two well-known stocks we’ll cover today may be in your portfolio right now.

So, be sure to get the details in my latest Buy This, Not That episode.

Click here or on the thumbnail below to dive in.

 

TRANSCRIPT

Hey, everybody, Shah Gilani here with your weekly BTNT, as in Buy This, Not That.

Now, bank earnings have been the talk of the town – and probably the talk of every financial program – because they’re leading third quarter earnings reports.

And because banks are the talk of the town, let’s look at two of the world’s largest banks, JPMorgan Chase and Bank of America. Which is a Buy?

I’ll get right to it.

Buy JPMorgan Chase (JPM).

JPMorgan Chase beat across the board as far as earnings go. Everything was a beat, whether it was a sequential beat in terms of month over month, quarter over quarter, or year over year… third quarter this year versus third quarter 2023.

The stock has just been on a tear. It weathered a little bit of a pullback in August, as did Bank of America. Then it moved and marched higher, and it’s just been hitting it out of the park.

JPMorgan Chase is the country’s largest bank, certainly in terms of assets, certainly in terms of deposits, but moreover in terms of capitalization.

The market capitalization for Bank of America is a heck of a lot less than JPMorgan Chase. How about half?

JPMorgan Chase has a market capitalization of $626 billion. It’s a behemoth of a bank. Bank of America has a $324 billion market cap.

JPMorgan Chase’s revenues are absolutely fantastic. $160 billion-plus over the trailing 12 months. Absolutely solid. Bank of America’s aren’t bad, but considerably less at $94 billion.

JPMorgan’s profit margin is 33.73%. A shade under 34%. Bank of America’s profit margin is 25%.

The only edge that Bank of America has on JPMorgan is its dividend. It’s slightly higher. The dividend yield for Bank of America is 2.47%. I’m unimpressed. The payout ratio there is 35%-plus.

The yield at JPMorgan Chase is nothing to really “rah rah” about at 2.25%, but you’re not buying it for that yield. But you do get a yield. The payout ratio is less than Bank of America’s. Again, Bank of America’s payout ratio is 35%. JPMorgan Chase’s payout is 25% payout ratio. That’s 25 %of the net income available to common shareholders that goes toward paying the dividend. So plenty of room to grow.

Again, JPMorgan Chase hit it pretty much out of the park across the board in investment banking fees, trading, fixed income commodities, lower deposit costs, net interest margins were higher. It just hit it out of the park.

Bank of America (BAC) beat, but it beat not because their numbers were better… but because they beat analysts’ expectations.

That’s a problem for me. A beat is a beat is a beat. Yes. But while JPMorgan Chase beat pretty much everything, Bank of America’s stock rose only because the company beat consensus estimates, which were knocked down.

Let me give you an idea of how things weren’t so great at Bank of America…they had a small revenue increase quarter over quarter, from 2023 to 2024. The market liked it because it was better than the consensus.

Net interest margin was actually down. But analysts liked it because it beat further knocked down expectations. Consensus estimates were for a lower net interest margin figure.

Again, this is not compelling stuff, but it tells the story of why JPMorgan is better than Bank of America.

Earnings per share for Bank of America came in at $0.81 a share. A year ago, it was $0.90 a share.

Again, the market liked it because it beat analyst expectation of only $0.75 this year. So going the wrong way, but still better than consensus estimates. That’s pretty much the story of Bank of America. I think the stock rose on the back of JPMorgan Chase.

So yes, they’re both great banks. If you own Bank of America, don’t sell, but make sure you have a good stop onto there.

If you don’t own either of the banks and you want to know which one to buy, buy JPMorgan Chase not Bank of America.

That’s it. Catch you guys next week. Cheers.