Senior Vice President Christopher Montoya of First Financial Trust is investing in JPMorgan Chase & Co. (NYSE:JPM) because of rising interest rates, which he says will be very positive for the financial sector.
J.P. Morgan is currently trading at 10.7 times 2016 earnings estimates and barely above book value. It has an attractive dividend yield of 2.64%. They have a strong balance sheet. They are very well-capitalized, and our anticipation is, in March, they will be given the green light by the Fed to do additional capital increases to shareholders through more buybacks and an increased dividend.
Also, J.P. Morgan will be helped by the increased interest rates by the Fed. A large percentage of their loans are floating rate versus fixed rate. They have a low loan-to-deposit ratio, which enables them to increase their lending as rates rise.
Montoya adds that credit cards are among the highest ROA businesses in banking, and 85% of JPMorgan’s credit card portfolio is with consumers with FICO scores above 660.
The likelihood that there will be charge-offs is going to be very low, and they are able to capture these profits. And finally, with J.P. Morgan, the litigation expenses, which have been hurting earnings for several years, are beginning to wind down as they settle many of these disputes with the government. So that too will also aid earnings.
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