So far in 2013, one of the strongest performing sectors has been the financial sector. In particular, the large cap banks Citigroup (C), Bank of America (BAC), Wells Fargo (WFC) and JP Morgan (JPM) have all done well. Right now, JPM is my favorite large cap U.S. bank stock for investors.
Just weeks ago, JPM announced record quarterly earnings, and at the same time increased its quarterly dividend to 38 cents per share from 30 cents per share. On an annualized basis, JPM now yields just over 3%. Comparably, the only other large cap U.S. bank with a significant dividend yield is Wells Fargo, which also yields just over 3%. Citigroup and Bank of America both yield well under 1%. For income investors JPM and Wells Fargo are the only two viable investments in this sector. The ability to pay a high dividend speaks to the strength of both JPM and Wells Fargo as being quality companies. Like Warren Buffett, I am a believer that it is better to buy a high quality to company at a fair price than a fair company at a great price.
As shown by the chart below, JPM has lagged behind its peers over the past year. Citigroup and Bank of America have significantly outperformed both JPM and WFC. At this point, I am looking for JPM to catch up at least somewhat to the move made by Bank of America and Citigroup. Additionally, given a sharp stock market sel-off, I view Citigroup and Bank of America to be extremely vulnerable whereas JPM and Wells Fargo do not face as much risk because they have not rallied as much.
Large Insider Buy
So far, I have given reasons why I believe JPM is a better buy than Citigroup and Bank of America. However, I have not yet said why JPM is a better buy than Wells Fargo. Both JPM and Wells Fargo pay good dividend yields and have underperformed over the past year. The reason why I currently prefer JPM to Wells Fargo has to do with a large insider purchase. Just days ago, 2 large purchases of JPM stock were made by an insider, James S. Crown. The total amount of shares purchased was more than 436,000, and the total nominal amount of the stock purchased was more than $20 million. This transaction is important because of its size. Clearly, Mr. Crown, a director at the company, is confident that JPM will move higher. Furthermore, in addition to the fact it was a large transaction, Mr. Crown has also proved to be good insider to follow in the past. Mr. Crown made his last large purchase, more than 193,000 shares in August of 2011, when JPM was trading close to $35 per share.
Due to its superior dividend, failure to keep pace with the rally in other large U.S. banks, and large insider buying, JPM is my favorite large cap U.S. bank.