According to an analyst at Baird, after a recent rally, the shares of JPMorgan Chase and Bank of America are now running only on fumes.
David George suggests a cautious approach to the money-center banks, as their risk/reward profile has become less attractive with rising valuations and expectations.
The case to reduce exposure or sell outright is growing despite their “gold-standard” reputation.
It may be the right time to sell JPMorgan shares
JPM outperformed S&P 500 this year. Shares are currently up by 35% from their low of the year in early April.
This outperformance came at a price – “valuation”.
JPMorgan’s shares currently trade at a record price of 2.9 times the tangible book value, and have a P/E forward ratio of 15, indicating that much of the positive news has already been baked into their share prices.
David George, on Friday, downgraded JPM’s stock from “outperform” to “underperform”. His price target is $235 which indicates a potential decline of 18% from the current level.
The Baird analyst said that JPMorgan still has a strong balance sheet, and it continues to dominate the financial industry. However, “future return will not likely be as high at this valuation level.”
This best-in class franchise is a bad investment because the expectations for it are way too high.
The bullish narrative, with capital markets opening again and deregulation providing an additional tailwind, is persuasive – though perhaps overly embraced. George is of the contrarian opinion that JPM may have a higher ceiling than it does a lower floor.
Bank of America Stock: Now is the time to Sell
BofA shares are up 12% from their April low. David George has downgraded today’s bank stock to “neutral”.
Bank of America’s shares are expected to rise modestly, though not enough for a new purchase at the current price.
Baird upgraded BAC previously in April, believing that the market undervalued the firm’s earning power. He believes that the gains made in the past are now behind him, as the stock reflects improved net interest margins.
He wrote: “We are still huge fans of BAC, but feel that the stock price is largely reflecting this.”
BofA’s stock is no longer a bargain. It may not be as overvalued as JPM but it has lost its value. This makes it at best a buy for investors who are looking to take advantage of better opportunities.
George said that with stocks nearing highs, and the market’s sentiment booming, it may be time to start taking profits now before gravity takes over.
This article JPM and BAC – two bank stocks with gold standards you should sell’ right now first appeared on The ICD
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