Banks are once again dominating the news as the sector continues to sell off in the wake of Silicon Valley Bank's demise. That includes the nation's largest bank, JPMorgan Chase, but at least one analyst believes that makes for a good buying opportunity.
It's an argument investors are likely to hear again -- with good reason.
Wells Fargo analyst Mike Mayo upgraded JPMorgan (ticker: JPM) to Overweight from Equal Weight on Monday, and raised his target for the stock price to $155 from $148. "JPMorgan is battle-tested through downturns, aided by its 'fortress balance sheet,'" he said.
The 2008-2009 financial crisis ushered in a string of new requirements for the big banks in terms of their capital positions following government bailouts, in part to ensure that they wouldn't run into trouble in a future crunch. Some shareholders grumbled about the more stringent rules, particularly because they required banks to keep more cash on hand, rather than buying back stock or increasing their dividend payouts.
Yet the changes stemming from that regulatory overhaul do offer reassurance for investors in the big banks as a whole.
JPMorgan, however, has other advantages, Mayo wrote. "JPMorgan has gained meaningful market share in each of its business lines...and has previously excelled in times like these when other financial firms have issues" he continued. "JPMorgan epitomizes our theme of 'Goliath is Winning'...in these less certain times."
The theme of the biggest players in an industry consolidating their market share during a crisis is a scenario that has played out many times. Examples include gains by McDonald's $(MCD)$ during the 2008-2009 financial crisis, or the gains seen by big retailers like Target $(TGT)$ and Costco Wholesale $(COST)$ during the height of the pandemic. In JPMorgan's case, gains made now would be a continuation of those made in recent years.
Moreover, as the nation's biggest bank, it's hard to imagine a scenario where JPMorgan runs into serious trouble without being bailed out. No bank more truly embodies the concept of being too big to fail. Little wonder then that nearly two-thirds of analysts rate the stock a Buy or the equivalent, with an average price target of $158.18, more than 18% above where the shares closed Friday.
It also goes without saying that JPMorgan, and most other banks, are more diversified than Silicon Valley Bank, owned by SVB Financial $(SIVB)$. While many of Silicon Valley Bank's deposits were held by start-ups in tech, most other lenders have a broader range of customers. They also have a greater breadth of income-generating assets, though all firms' fixed-income portfolios will have taken some hit as rising interest rates hurt the value of bonds.
Of course, believing that JPMorgan can weather any financial storm is different than suggesting its stock is a buy now. Even assuming that the sector's current worries are ultimately calmed, banks, like many companies, tend to see their stocks waver in a downturn. If a recession arrives, as has long been expected, that could be another hurdle for the shares.
Nonetheless, for investors who want exposure to the banking sector, it's hard to think of a more secure option than JPMorgan, given its scale and strengths. The fact that David's victory over Goliath was a shock underscores the fact that the Goliaths usually win.