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3 Reasons to Buy JPMorgan: Goldman Sachs

Stocks in this article: JPM WFC BAC

NEW YORK ( TheStreet) -- Despite looming uncertainties, investors should buy shares of JPMorgan Chase (JPM), according to Goldman Sachs analyst Richard Ramsden.

"While investors are unlikely to get full clarity on the issues that have weighed on JPM in the near-term, we believe shares will begin to re-rate before the market has certainty, with the May 21 shareholder vote serving as a potential catalyst," Ramsden wrote in a note to clients on Monday.

JPMorgan's shares have been under pressure amid negative headlines surrounding litigation, growing regulatory scrutiny and the pending shareholder vote on splitting Jamie Dimon's Chairman/CEO dual role that may prompt his exit.

The stock has been flat over the past three months, underperforming the KBW Bank Index (I:BKX) and peers such as Wells Fargo (WFC).

The bank continues to deal with the reputational fallout from the "London Whale" trading debacle last year, which has prompted federal inquiries and Congressional hearings.

It has also been a target for other regulatory actions. The bank said in a regulatory filing last week that the Federal Energy Regulatory Commission intends to bring an enforcement action against it related to its bidding practices in the organized power markets.

California Attorney General Kamala Harris on Friday said she was suing the bank over its handling of credit card debt collection, alleging the bank flooded the state's court system with questionable lawsuits.

Meanwhile, two influential advisory firms ISS and Glass Lewis are recommending shareholders vote in favor of splitting the chairman and CEO roles, which have been held by Dimon since 2005.

According to Ramsden, historically, shares of JPMorgan Chase have always "re-rated" prior to the full removal of the overhang. For instance, shares of JPMorgan fell sharply upon disclosure of the trading loss, but began to outperform three weeks later, even though there was still no clarity on the size of the loss.

JPMorgan also remains highly undervalued relative to Wells Fargo, even though the banks have similar earnings growth prospects, according to the report. Shares of Wells Fargo trade at 9.7 times 2014 estimated earnings, while JPMorgan trades at 8.3 times forward earnings. JPMorgan gets a significantly larger "conglomerate discount" than Wells, Ramsden wrote.

JPMorgan is not only cheap but has "minimal execution risk," according to Ramsden. JPMorgan has already exceeded the analysts' 2014 estimates based on annualized first quarter earnings. The bank will need to grow revenues by only 1% from the first quarter revenue run-rate to hit consensus 2015 earnings, compared to 11% for the average bank and 30% for Bank of America (BAC).

-- Written by Shanthi Bharatwaj New York.

>Contact by Email.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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