In this segment of Using a Value Line Report, we will be taking a look at two of the largest and most well-known investment institutions in the world, JPMorgan Chase (JPM - Free JP Morgan Stock Report) and The Goldman Sachs Group, Inc. (GS - Free Goldman Sachs Stock Report). These companies are among the oldest and most iconic banking institutions in the nation. The two goliaths of the financial services arena have storied histories that date back to the early 19th century; both 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 analyze each company’s respective business model and consider various criteria that speak to the equities’ appealing investment prospects, as well as the factors that offer insight into their respective risk profiles.
First, we believe it prudent to highlight some of the disparities between these two companies. Indeed, it is worth noting 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, 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). Nevertheless, 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 serve. In addition, a closer look at the respective reports should reveal some key differences between the two; Goldman’s report is tailored for a securities investment-focused business model, while JPMorgan’s report is built for a consumer/corporate/commercial banking business model. The regions of the reviews that most clearly demonstrate these disparities are the Statistical Arrays.
Now, from an investor’s perspective, we will shift our focus to some of the performance metrics that are most relevant for the short-term, momentum-style approach, as well as the longer-term, buy-and-hold strategy. For the near-term investor, a closer look at the Value Line reports on JPMorgan Chase and Goldman Sachs reveals that neither of these companies particularly stand out for year-ahead price performance, as both issues are ranked 3 (Average) for Timeliness (found in the Rankings box at the top-left corner of the report). On the surface, this information may not seem very compelling, given that these designations suggest that the stock prices are ranked to merely move on par with the broader market averages over the next six to 12 months. However, to the right of the rank there is a date and a notation as to the nature of the most recent change in this metric, which notes that, while JPM’s rank was downgraded to a 3 in October of 2014, GS’s rank was upgraded to a 3 in April of 2015. This information ought to prompt the more intuitive investor to take a look at the Graph (at the top-center of the report) and related price chart to determine which of these stocks is on an upswing versus a downward trend. At this juncture, however, this region offers limited insight, given that both equity prices have been trending higher of late. Still, upon further investigation, scanning down to the bottom-right corner of the report, the Financial Strength box holds scores for stock Price Growth Persistence. A comparison of these data points reveals that JPM holds a higher mark of 55 (out of 100) to GS’s 30 (out of 100). Given that this metric is calculated based on historical stock-price performance, it is difficult to determine with any confidence which of these equities offers the more favorable near-term appreciation potential. Nonetheless, a recent upgrade in rank (GS) points to a modestly brighter outlook for price gains in the short term.
Another factor that ought to directly impact an equity’s near-term price trajectory is the company’s share-earnings estimates. This data can be found in the aforementioned Statistical Array, as well as in the Quarterly Earnings box toward the lower left-hand corner of the report. Here, there are two important factors to consider. While GS’s earnings per share may appear much higher than JPM’s at first glance, the data in the Statistical Array shows that JP Morgan’s profits actually dwarf Goldman’s in absolute dollars. Indeed, it is the share count of each of these companies that cause the share-net figures to differ conversely. Furthermore, JPM’s earnings-growth prospects over the next couple of years are, in fact, more attractive than Goldman’s. In light of this rather contradictory data, it would appear that the near-term prospects are somewhat inconclusive and that, perhaps, momentum-driven accounts should consider other options.
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 JP Morgan has a slight edge over Goldman, as both its potential gain percentages and its total return potential exceed those of the latter. (Note: the spread on these data points have narrowed since the most recent Value Line reports, owing to stock price gains since the last respective reviews). Hence, given that GS is a much pricier stock, JPM appears to be a stronger overall choice for long-term investment. Furthermore, JPM offers a more substantial yield (found in the Top Label) for income-oriented investors.
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.