How to Make Coin on JPMorgan and Wells Fargo Into Earnings

NEW YORK (TheStreet) -- JPMorgan Chase (JPM) and Wells Fargo (WFC) report earnings Friday and they face unique headwinds into the summer months. I'm extremely bullish with one while more or less neutral with the other and I'll explain why. I also like Citigroup (C).

Wells Fargo is a diversified financial services company providing banking, insurance, investments, mortgage and consumer finance services across North America as well as internationally.

52 Week Range: $36.19 to $50.49

Book Value: $29.50

Price To Book: 1.7

WFC Chart

Investors are looking forward to improving first-quarter earnings before the market opens on Friday. The consensus opinion is presently (subject to change) 96 cents a share, a progression of 4 cents (4.34%) from 92 cents during the corresponding period last year. The lowest analyst estimate this report is 90 cents per share, and the highest is $1.02 per share.

I believe Wells Fargo will beat the consensus and report at least 2 cents above consensus. 

Analyst opinion is mixed with this company. Most of the analysts surveyed don't believe a buy or a sell is currently warranted. Right now, Wells Fargo has 13 buy recommendations out of 34 analysts covering the company, 19 holds, and two recommend selling.

I last examined earnings expectations for this pair in July. At the time, I was also following up with Wells Fargo because it was one of my five dividend picks for 2013. Wells Fargo was trading for about $42. After an adverse appellate court decision, I updated my bull thesis and this success story is far from over.

I bank at USBancorp (USB) and Wells Fargo and as crazy as it may sound, I don't mind taking a trip to either location. Wells Fargo usually greets me at the door, every request is hassle free, and the staff treats you like your time is valuable.

The bank understands that delivering outstanding service cost less than marketing, and the stock charts say it all. In fact, Wells Fargo reached a new all-time high last week. Despite Well Fargo's soaring stock price, the bank continues to attract value buyers, and will continue to do so.

Wells Fargo's forward price-to-earnings multiple is a head-scratching 11.4 and should expand closer to 14 as the economy improves. New 52-week highs almost weekly is making shareholders rich, but the oversized dividend is making them wealthy.

Shareholders receive $1.2 annually in dividend payments. The yield based on a recent price is 2.4%.

Short-sellers are not interested in betting against this one. Short interest is a non-factor at a rate of 0.7% of the float. In my opinion, there's little else to know beyond the micro-sized short interest. A short interest less than 1% is the equivalent to a stamp of approval by short sellers that you're as safe as you're going to be in the market.

WFC Revenue (Quarterly) Chart


JPM Chart

JPMorgan is a global financial services firm. The firm is a leader in investment banking, asset management, private banking, private equity, custody and transaction services and retail and middle market financial services.

52 Week Range: $46.05 to $61.48

Book Value: $56.22

Price To Book: 1.1

Strong first-quarter earnings growth is expected by Wall Street before the market opens on Friday. The consensus mean is a $1.41 a share, a drop of 18 cents (11.32%) from $1.59 in the same quarter last year. The lowest analyst estimate is $1.28 per share, and the highest is $1.55 per share.

The majority of analysts believe JPMorgan continues to offer a buying opportunity. 26 of the 33 analysts covering the company give a buy recommendation. Some (six) are taking a more cautious approach, and rate it a hold. As of the last update I have, one analyst recommends selling some or all holdings.

New investors from a year ago are happy, and analysts rating this company a buy have called it correctly. Shares are 23% higher over the last 52 weeks, but off the 52 week highs made a month ago. Analysts are calling for a price target of $66.23.

This stock currently has an annualized dividend of $1.6, yielding 2.7%. Not as good as Wells Fargo, but impressive on its own.

The last reported short interest is paltry and without reason to consider it a meaningful influence at only 1.1% of the average trading float.

I fell out of love with JPMorgan when investors started paying for the past sins of management. Government regulators went after the easy deep pockets of the corporate treasury, instead of the people who allegedly broke the rules.

That said, I believe the easiest path is higher for JPMorgan, but given a choice for long-term buy and hold investors, Wells Fargo offers a better value and dividend.

JPM Revenue (Quarterly) Chart

At the time of publication the author had no position in any of the stocks mentioned.

Follow @RobertWeinstein

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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