JPMorgan vs. Bank of America? Analysts say one of the stocks is set to soar 45%
It’s not just regional bank shares that have been hit by the recent banking crisis — large-cap bank stocks have also tumbled. But some analysts think the slide is overdone, and retail investors flocked to buy the dip in the biggest, traditional American banks last week. Still, there may be more room to run. JPMorgan was down nearly 6% last week, while Bank of America tumbled 8% over the same period. Citi lost around 8.5%. “The heavily oversold readings in financials could reverse as the conditions continue to ripen for a big rebound in bank stocks,” said Ben Emons, senior portfolio manager at NewEdge Wealth Management, in a note on Sunday. Meanwhile, Kenny Polcari, chief market strategist at SlateStone Wealth, described the pullback as “an opportunity for those that have a strong stomach,” referring to stocks such as JPMorgan, Bank of America, Citi and Wells Fargo . UBS said in a Mar. 16 note that large-cap bank valuations are set to recover from “liquidity crisis lows.” It said big banks are a “big beneficiary” and fundamentals at JPMorgan Chase, Bank of America, Wells Fargo and Citi look “rather strong.” The first three are benefiting from “fully scaled, granular” retail deposits, UBS said, and Citi is popular with multinational companies that use its “best-in-class” treasury services. For those looking to invest, CNBC Pro takes a look at what analysts are saying about JPMorgan Chase and Bank of America in particular. Here are some key metrics, including how well capitalized they are, their profitability, and the nature of their deposits: Bank of America: ‘Fortress balance sheet’ Vance Howard, CEO of Howard Capital Management, told CNBC that while he would be “patient for the banking crisis to settle,” he would pick Bank of America if investors were looking to buy into this market. It’s a view echoed by Smead Capital Management’s CEO Cole Smead, who said interest rate rises from central banks help lenders “that don’t do stupid things in their assets.” “Poor stock markets have caused investment banks to be the laggards, but commercial banks look good next to them,” he told CNBC via email, naming Bank of America (and JPMorgan ) as stocks he particularly likes. While Howard also likes JPMorgan, he told CNBC Pro that Bank of America is selling at a better price right now, making the “risk to reward a better pick.” “We think this stock can weather the storm and potentially be an attractive long-term buy for investors,” he said. UBS also said that the underperformance of Bank of America’s stock last week “befuddles,” adding: “We think there is an especially compelling opportunity for BAC at these levels, given an already best-in-class deposit base prior to flight-to-quality benefits, solid capital and strong liquidity, and a fortress balance sheet built from a decade plus of “responsible growth” — which should be particularly valuable in a recession (which now feels inevitable).” The issue of uninsured deposits has come under the spotlight amid the collapse of Silicon Valley Bank, which held a high number of uninsured deposits beyond the Federal Deposit Insurance Corporation guaranteed limit. However, Bank of America has only 8% of uninsured deposits as a proportion of its total deposit liabilities. This was the second-lowest in a ranking of the top 100 U.S. banks, according to data from Raymond James dated Mar. 16. Analysts covering the stock gave it 45% potential upside on average, and 50% give it a buy rating, according to FactSet. JPMorgan Chase: ‘Battle-tested’ Wells Fargo struck a bullish tone on JPMorgan Chase in a series of notes last week, upgrading the stock to overweight and raising its price target to $155, giving the stock around 23% potential upside. “JPM is battle-tested through downturns,” said Wells Fargo. “As the largest US bank, it epitomizes bank industry de-risking that has taken place since the [global financial crisis] in terms of leverage (almost 1/3 as much), liquidity (est. 50%+ more), and losses (structurally lower).” Morgan Stanley in a Mar. 20 note said it’s skewed towards defensive stocks, with a preference for large banks. “The best positioned banks will be those with higher capital, excess liquidity, more resilient deposit base and/or better quality loan books,” it said, naming JP Morgan as a stock that it’s overweight on. In a separate note, Wells Fargo analysts said that U.S. banks are stronger, have more capital, and should continue to gain share compared to European banks. The U.S. banks would also likely have been prepared for the Credit Suisse issues, they wrote in a note before the UBS sale. The analysts said that JPMorgan is the “strongest” bank, and Citi should also benefit. In terms of uninsured deposits, however, JPMorgan Chase has a significantly higher level than Bank of America, with 27.2% of uninsured deposits as a proportion of its total deposit liabilities, ranking 73 rd in the list of top 100 U.S. banks, according to the Raymond James data. Analysts covering the stock give it 25% potential upside on average, and 63% give it a buy rating, according to FactSet. — CNBC’s Michael Bloom contributed to this report. Correction: The headline of this article has been updated to reflect that analysts covering Bank of America give it 45% potential upside on average.
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