Ever since the debacle of 2008, the Federal Reserve has conducted periodic "stress tests" on the big banks, assessing how a bank will hold up against market factors like unforeseen changes in interest rates or a sudden plunge in stock prices. The Fed also conducts a thorough review of the institution's policies, processes and infrastructure.
One company that has consistently done well in these tests is JPMorgan Chase(JPM) - Get Report . In its most recent evaluation, the bank's reserves were found to be strong enough that the Fed gave management the go-ahead to proceed with an ambitious $10.6 billion capital repurchase plan.
JPMorgan offers investors strong income along with reliable growth prospects. Its dividend yield, recently reaffirmed by management, is just under 3%. The share price has risen steadily over the past five years. Its price-earnings ratio is a reasonable 11. Shares rose slightly in Friday trading.
The bank can be part of an investment strategy that works in all markets, one that can guarantee your profits.
Morgan and Chase, two of the most respected names in banking since the 19th century, merged to form one financial colossus in 2000. The bank now has assets of $2.4 trillion -- making it one of the two largest U.S. banks by assets -- and operations worldwide. It's rock-solid in every financial sector you can name: investment banking, financial services for consumers and small businesses, commercial transactions and asset management.
The company's most recent earnings report showed strong performance across the board: record deposits in personal bank accounts (up 10%), credit card sales volume (up 8%), merchant processing volume (up 13%) and loan growth (up 16%), particularly in mortgage and commercial real estate.
There's unlikely to be any sudden change to interest rate policy from the Federal Reserve until the November election is over, at the earliest. Recent economic numbers from the government have been a mixed bag with some indicating the possibility of a slowdown while others seemingly pointing toward continued growth. So the banking sector will likely continue to generate steady profits, with JPMorgan Chase at the head of the class.
What makes JPM a better buy than its competitors? Bank of America is comparable in terms of total assets, but its performance on the Fed's stress tests has not been as good, and its profits are not as reliable. Over the past 10 years, JPMorgan's annual net income is up 69%. Bank of America's is down nearly 25%. Citigroup does not equal JPM's global presence, liquidity and dominance of all financial sectors.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.