Face Off: J.P. Morgan Versus Bank of America


To build a diversified portfolio, you may have to choose between stocks in the same industry. The following face-off between banking giants Bank of America ($12; BAC) and J.P. Morgan Chase ($46; JPM) provides a blueprint for how to make those choices.


At the Forecasts, our analysis starts with Quadrix scores. Our Quadrix stock-rating system evaluates more than 80 variables across six categories: Value, Momentum, Performance, Quality, Earnings Estimates, and Financial Strength. For more on the scores, visit www.DowTheory.com/Go/Quadrix and click on the "Quadrix Explained" link. The six category scores are aggregated to compute an Overall score of 0 to 100, with 100 the highest. The most important Quadrix score is the Overall score, and the Value score has been particularly effective for financial stocks.

Financial Strength:
Earnings Estimates:

J.P. Morgan has vastly superior Quadrix scores in most categories, including the key Overall and Value scores.

Advantage: J.P. Morgan

Quadrix scores compare stocks across our research universe of approximately 4,500 companies. For a tighter focus, the Forecasts' sector-specific scores compare stocks to others in their sectors:

12-Factor Sector — This score considers 12 statistics that work particularly well for a given sector.

Reranked Overall — This score reweights traditional Quadrix category scores to emphasize categories that work best in each sector.

You can find sector scores for more than 1,500 stocks at www.DowTheory.com/Go/Sectors. The table below presents sector scores for our dueling banks:

12-Factor Sector:
Reranked Overall:

Advantage: J.P. Morgan

When considering stocks in certain industries, we also look at yield and dividend-growth potential, with greater emphasis on the latter. J.P. Morgan yields 2.6%, versus 0.3% for Bank of America.

Dividend growth also favors J.P. Morgan, which has increased its payout twice since cutting it sharply in 2009. On the other hand, Bank of America still has not received regulatory clearance to boost the
dividend past its $0.01-per-quarter rate.

Regulators might be willing to grant Bank of America permission to raise the dividend, but the firm may not be interested until it has more clarity on future earnings and legal bills. Bank of America agreed earlier this month to pay $14.5 billion to settle two mortgage-related lawsuits (see Portfolio Review for more on the deal), but many potential pitfalls remain.

Advantage: J.P. Morgan

Mean reversion

Of course, numbers don't tell the whole story. A Wall Street adage holds that bad news is good news — because it may reflect a bottom in a stock price. In 2011, Bank of America generated the worst performance among Dow Jones Industrial Average stocks, falling 58%. The poorest-performing Dow stocks tend to rebound in the next year.

Bank of America went from worst to first in 2012, delivering a 109% return. J.P. Morgan, another Dow component, posted a respectable 36% total return in 2012. When evaluating whether both stocks' rallies have pushed them into overvalued territory, consider Quadrix Value scores. J.P. Morgan earns a 91, versus Bank of America's middling 52.

Advantage: J.P. Morgan

Bottom line: Based on virtually every yardstick, J.P. Morgan shapes up as a better investment than Bank of America. Thus, it is not surprising that the Forecasts ranks J.P. Morgan as a Long-Term Buy, while Bank of America earns a C (below average) ranking on our Monitored List. Investors who want exposure to major money-center banks should preference J.P. Morgan, as well as Wells Fargo ($35; WFC) and U.S. Bancorp ($33, USB), both of which carry Buy and Long-Term Buy ratings.

Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com