JPMorgan Chase & Co. (NYSE:JPM) is one of the largest banks in the U.S. As of today JPM stocks are trading at all time highs. There are a couple of good reasons for this. JPMorgan’s net interest margins are expected to increase over the next 12 months starting from the much anticipated Fed rate hike later this month. The net interest margin is the difference between the interest rate on a loan that a bank lends out, and the interest rate that is earned on a savings account investment. The net interest margin for JPM is 2.41% as of December 1st, 2016. But over time, if interest rates increase like investors expect them to, the net interest margin will rise as well. JPM has positioned itself to profit from higher interest rates in the future. Chances of a rate hike at the Fed’s Dec. 13-14 meeting were pegged at 95% according to a CME FedWatch report.
Another positive thing going for this company is that it has said it wants to return $18 billion to its shareholders. This is the equivalent to about 4.5% of it’s total market capitalization. Many investors are happy to hear this news. In the U.S. all banks need approval from regulators to return capital back to shareholders. When JPMorgan announced that it had acquired permission to return the capital, investors flocked to the stock. JPM stock is also distributing a 2.3% annual dividend yield which is not a low amount compared to alternatives out there today. What this boils down to is that even if the share price of JPM doesn’t perform well, or if it drops a little bit, at least investors know that over the next year roughly 7% of the company will go back to shareholders as cash. This creates more interest for this stock among income and growth investor because it shows that JPMorgan has a confident outlook. Shares of JPM have shot up 22% in the past month alone. JPM is up 25% year to date as of today, Dec 6th. With a price to earnings multiple of just 14.2 times, it is still relatively cheap compared to the broad based S&P500 index which as a 18.4 times ratio. JPMorgan is also trading at a 17% discount relative to the financial industry average.
Unlike tech stocks or small cap financial companies, JPM is a large money center bank and it is participating in the U.S. domestic recovery. The firm is engaged in all areas of banking such as investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing, asset management and private equity. JPMorgan Chase & Co. is also offers consumer and business, and mortgage banking products and services that include checking and savings accounts, mortgages, home equity and business loans, and investments. Investing in JPM is not a bad way to gain exposure to the U.S. real estate market and economy in general.
However, buying REITs or real estate investment trusts would be better way to directly invest in the real estate sector. American Assets Trust, inc (NYSE:AAT) for example is a full service, vertically integrated and self-administered REIT. It basically owns, operates, acquires and develops retail, office, multifamily and mixed-use properties in high-barrier-to-entry markets in Southern California, Northern California, Oregon, Washington, Texas and Hawaii. REIT will send its people to actively go out and look for new buildings to operate, expand their portfolio of properties, raise rents, reduce vacancies, diversify on behalf of their investors, and utilize the economies of scale. Given the current market landscape, both JPM and AAT appear to be worth taking a look at.
This author has 75 shares of JPM, and no shares of AAT and does not plan to make any changes to his stock positions within 72 hours of writing this post.