JPMORGAN (JPM)
INVESTMENT THESIS
Banks aren’t sexy like tech stocks, they don’t solve the worlds problems like health care, they don’t build anything like industrials. They just make money… from money.
JP Morgan is the worlds largest financial institution which makes
money through four segments
- Consumer and Community Banking
- Corporate and Investment Bank
- Commercial banking
- Asset and Wealth Management
INVESTMENT THESIS
The Investment Thesis
for JPMorgan is founded on three pillars.
1. Diversification – It’s important to have a financial institution as part of a broad portfolio. The stock offers a $3.60/share dividend.
2. Banks make money – Banks
make money from money. They take depositors money, they take the governments money, they take corporations money then they lend it out, they reinvest it and then make more money. The cycle continues.
3. Federal Government Financial Stimulus – Governments around the world have collectively announced over $14 Trillion of financial stimulus to not only sustain their economies through the Covid-19 pandemic, but to grow their economies afterwards. That money all
gets cycled through financial institutions..
When we look at an Investment Thesis it’s important to consider it within the context of three important areas.
Best in Class – JP Morgan is the largest Financial Institution
in the world with a strong management team led by Jamie Dimon and a financial balance sheet which exceeds US federal reserve requirements.
Secular Growth Trend – Banks are traditional institutions but as populations increase
and the generations mature there is an evolution in societal behaviour towards saving and investing, but also towards borrowing to support the growing focus on the culture of 'lifestyle'. Capitalist cultures drive corporate growth
which fuels merger, acquisition and IPO activity providing consultancy fees.
Strong Macroeconomic Environment – The Covid-19 pandemic has weakened the global macroeconomic environment however this has been offset by over
$14 trillion in global financial stimulus by governments.
RISKS
There are risks to an investment/trade in financial institutions
- 42 Million unemployed during the Covid-19 pandemic
- Credit, loan
and mortgage defaults
- Slower than expected economic recovery
- Government agencies slowing economic stimulus (Free Money)
- Corporations reducing capital expenditures which require borrowing
what does that mean at moneywiseHQ
It
takes money to make money is an age old investing paradigm.
Imagine the governments of the world gave you access to trillions of dollars at 0% interest, what would you do with it?
JPMorgan takes that money and loans
it out at higher interest rates. They invest it in financial instruments. They lend it to corporations who generate revenue which then gets deposited back in the bank.
They take money… and they make more money… to the average investor
it is that simple, but in reality, how that money is made is very complicated involving credit spreads, equity and debt underwriting, lending, trade finance… it’s a never ending list.
Financial Institutions are the foundation of
the economic system. A successful portfolio should consist of a combination of growth stocks and stocks which provide underlying stability. JPMorgan is a Best in Class financial institution which provides a (suspended) share buyback program,
which when re-instated (after the Covid-19 pandemic), will provide an underlying level of support to the share price and in the meantime pays a $3.60/share dividend while waiting.