In this article, I will be taking a look at both JPMorgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC) to help determine which is the better long-term investment for specific types of investors based on a variety of metrics. In doing so, I will be reviewing each stock based on the following characteristics:
Since all investors are not the same, I believe that looking at companies through a range of lenses is useful in determining the worth of specific stocks. In my review, I will be comparing the two stocks on individual metrics, and then tallying the results of those values to determine a winning stock for each category.
The purpose of this category is to determine which stock has the best overall financial position, possessing a stable and consistent balance sheet and overall value.
Return on Assets
The ROA of both companies is low and similar to one another, with Wells Fargo having the slightly better ROA with a value of 1.37% compared to 0.90% for JPMorgan Chase.
Return on Invested Capital
Wells Fargo also has the better ROIC value at 5.27% compared to 3.79% for JPMorgan Chase.
The earnings yield of both stocks is similar, but JPMorgan Chase does hold a slight advantage with a value of 8.96% compared to 7.92% for Wells Fargo.
Both companies have seen significant increase in book value over the past five years, but Wells Fargo has seen the greater growth.
JPM Book Value (Annual) data by YCharts
Both companies have also seen a decrease in their outstanding shares over the past five years, but JPMorgan Chase has seen greater decline in outstanding shares.
JPM Shares Outstanding data by YCharts
In the stability section, I feel that both companies are well matched, with similar values across various metrics; however, with stronger ROA, ROIC, and greater book value growth, I believe that Wells Fargo does have a slight advantage at the moment.
The purpose of this category is to determine which stock has seen the most growth over the past several years and which stock is likely to continue seeing the most growth in the future.
Wells Fargo has seen fairly stagnant revenue growth over the past five years, while JPMorgan Chase has seen a decline in revenue during the same time period.
JPM Revenue (TTM) data by YCharts
Over the past five years, Wells Fargo's earnings growth has more than doubled that of JPMorgan Chase and has done so in a far more consistent manner.
JPM EPS Basic (TTM) data by YCharts
The profit margin of both companies is similar, but Wells Fargo does hold the slight advantage with a profit margin of 26.93% compared to 23.99% for JPMorgan Chase.
Return On Equity
Wells Fargo has the edge when it comes to ROE as well, with a slightly higher value compared to JPMorgan Chase.
JPM Return on Equity (TTM) data by YCharts
Stock Price Growth
Over the past five years, Wells Fargo stock price has increased significantly more than JPMorgan Chase. Its value grew by 104.90% compared to 59.18% for JPMorgan Chase. However, when looking at the past ten years, it is JPMorgan Chase with a slight advantage, having seen an 84.58% increase in value compared to 79.99% for Wells Fargo.
Wells Fargo wins this category as well, having the better values in every metric with the exception of 10-year stock price growth.
The purpose of this category is to judge each stock's current value to determine which one is more attractively priced.
JPMorgan Chase has the lower trailing PE ratio value of 11.17x compared to 12.67x for Wells Fargo. It also has the lower forward PE ratio value of 10.52x compared to 12.43x for Wells Fargo.
In terms of trailing and forward PEG ratios, JPMorgan Chase appears even more attractively valued compared to Wells Fargo.
JPM PEG Ratio (TTM) data by YCharts
Price to Book Value
JPMorgan Chase also has a lower price to book value of 1.06x compared to 1.59x for Wells Fargo.
Price to Free Cash Flow Value
JPMorgan Chase continues to be the more attractively priced stock when looking at price to free cash flow values as well.
JPM Price to Free Cash Flow (TTM) data by YCharts
JPMorgan Chase is the more attractively priced stock when looking at the various valuations available, but the question investors need to ask is whether that valuation is still attractive considering the fairly poor fundamental and growth metrics of the company.
The purpose of this category is to judge how well each stock will hold up during a recession. I will be looking at both dividends and past performance to score this.
Both companies currently pay out dividends with similar yields, 2.77% for Wells Fargo and 2.71% for JPMorgan Chase.
In terms of dividend growth, both companies have seen significant increases in their dividends over the past five years, with JPMorgan Chase holding the advantage.
JPM Dividend data by YCharts
Price Returns During Prior Recessions
During the 2007-09 recession, both companies lost nearly identical percentages of their value (20.1% vs. 21.4%), but both stocks held up better than the market in general.
JPM data by YCharts
During the 2001 recession, the opposite was true in which both Wells Fargo and JPMorgan Chase underperformed the market in general.
JPM data by YCharts
During the 1990-91 recession, Wells Fargo outperformed the market in general, while JPMorgan Chase greatly underperformed.
JPM data by YCharts
I don't think either of these companies are great defensive investments, but I do think that Wells Fargo is a fairly decent option. Both companies have paid consistent and increasing dividends for the past five years, but Wells Fargo has performed better during each of the past three recessions.
Out of these two stocks, I believe that Wells Fargo is currently the best long-term investment option. Although, JPMorgan Chase does offer a decent value play, I feel that the company's general lower fundamental metrics along with its legal issues (CDS settlement, London Whale) keeps it from being as attractive of an investment as Wells Fargo even with Wells Fargo's higher valuation.
With revenue and earnings growing organically and through acquisitions, along with Wells Fargo's dividend growth and share buyback program, I feel that the stock is a buy for long-term investors. With a very diversified business model that keeps growing, I feel that Wells Fargo will be a long-term winner for investors looking at the financial sector. As always, I suggest individual investors perform their own research before making any investment decisions.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.