On Wall Street, there are many firms that stand out and have a rich history. However, there are two investment banks that seem to be linked to "Wall Street," and they are Goldman Sachs (NYSE:GS) and JP Morgan (NYSE:JPM). These two titans of the industry are often the most sought out by college graduates of finance and often targeted by anti-Wall Street groups. In recent years, both banks have been the poster child for "Wall Street greed" and bonuses. Goldman Sachs has always been a favorite target of Occupy Wall Street but JP Morgan has seen increasing pressure over the last few years with its "London Whale" crisis and ties to the MF Global nightmare. However, these firms have been a part of the U.S. banking industry since the 1800s and there is no denying their legacy. The real question is whether Goldman Sachs or JP Morgan is the better buy right now.
First, let's look at Goldman. The bank has a market cap of $71.88 billion and as of September 2012, had cash and short-term investments of $117.24 billion and total assets of $949.21 billion. Liability wise, Goldman had total debt of $485.89 billion and total liabilities of $874.18 billion. Continuing with fundamentals, Goldman has a price to earnings of 10.8 and a forward price to earnings of 10.27. The investment bank currently pays an annual dividend of $2 of a yield of 1.31%. Sales have seen a nice 39% rise Q/Q and earnings per share has soared 205% Q/Q. It appears that trend will continue as earnings per share are forecasted to rise 214% this year and 10% next year. Most of this sharp rise in earnings can be credited to the stock market's raging bull market that recently pushed the Dow to a new intraday high. Margins look healthy with a gross margin of 73%, operating margin of 27% and profit margin of 18%.
Looking at the technicals for GS, it appears that the bank has an up sloping resistance, which was recently hit just below $160. Support is all the way back at $120.05. Shares are over 31% above its 200-day moving average and 7% above its 50-day moving average. The stock's current relative strength index comes in at a neutral 58.55.
To sum up Goldman, the company's fundamentals are strong. Earnings have been very strong and it appears that trend will continue through this year. The U.S. business climate appears to be strong, despite the automatic spending cuts that recently went into effect on March 1. Current pricing is just above book value making shares not a bargain but not overly expensive either. The technicals look good as the stock is above both its 50-day and 200-day moving average. RSI recently corrected to its current 58.55. Overall, Goldman looks like a great pick up on a correction.
Now we change gears and take a look at JP Morgan. Comparative wise, JP Morgan is larger with a market cap of $189.42 billion and total cash of $53.34 billion as of September 2012. JP Morgan is larger because it also owns and operates Chase Bank on top of its investment unit and private equity unit. Total assets equaled a massive $2.32 trillion at the end of September. Turning to liabilities, the banking giant had $576.09 billion in total debt during the same period and listed total liabilities at $2.12 trillion. Looking at valuation ratios, JP Morgan has a price to earnings of 9.52 and forward price to earnings of 8.5. The stock is currently trading at $49.80, which is a discount to its book value of 53.64. Additionally, the bank does pay out a higher yield of 2.42% or $1.20 a share, annually. Earnings per share are forecasted to rise only 16% this year and 6.4% next year. Overall, sales are down 10% Q/Q, while earnings per share are up 55%. Margins look good with an operating margin of 30% and profit margin of 22%.
Technically speaking, JP Morgan is in a tight up sloping channel, which has been going since the "London Whale" incident. The price action is currently up against its resistance, which is around $50. The stock's first support is at $45 and second support shows up at $43. Much like Goldman, JP Morgan is above its 200-day moving average by 25% and its 50-day by 6%. Relative strength comes in at a neutral 63.
To bring JP Morgan together, the company has great fundamentals and certainly is a steal under book value. Unfortunately, the bank does have a sizable debt load and growth appears to be not as stellar as Goldman. The bank is still gathering its footing after the "London Whale" and variety of lawsuits from last year. These events are what hit revenue and could put a damper on this year's earnings.
Now that we have looked at both banks, it comes in as a bit of a tie. On one hand, we have Goldman Sachs, which has less debt/equity and much more appealing earnings growth of over 200%. However, the stock is more expensive when we look at price relative to its earnings. JP Morgan on the other hand, pays out a higher-yielding dividend and is trading at a significantly cheaper level. However, JP Morgan will need to continue cutting its debt load to avoid any vulnerability if the market turns south later this year. In terms of management, both sides have world class CEOs in Goldman's Lloyd Blankfein and JP Morgan's Jamie Dimon. Both CEOs have demonstrated outstanding leadership and ability to keep their banking institutions relatively healthy and in good financial standing. Another way of assessing this decision is the fact that Goldman Sachs primarily deals with trading and private equity, while JP Morgan has a massive consumer banking arm in Chase. Both will continue to see great success if the market continues rallying and the business climate stays strong. However, if conditions do worsen, JP Morgan's Chase Bank could help the company's overall earnings.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: This article was written by an analyst at Catalyst Investments.
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