The tandem frequently compete for the highest-ranked spot for deal volume and number of transactions completed. Therefore, you can probably read between the lines that if JPMorgan Chase & Co. (NYSE:JPM) advises not to invest in Goldman Sachs Group Inc (NYSE:GS), it’s most likely not a good idea to invest in JPMorgan as a corollary.
Finally, data from Thomson Reuters indicates that mergers & acquisitions (M&A) deal volume was the lowest in terms of dollar value during the first half of 2013 in the last four years. For the reasons above, I am lukewarm on JPMorgan and Goldman Sachs Group Inc (NYSE:GS) for the remainder of the year.
Valuation
| Citigroup | Goldman Sachs | JPMorgan | |
|---|---|---|---|
| Market Cap $ | 141.5B | 69.0B | 199.5B |
| Ann. Dividend/Yield | $0.04/0.08% | $2.00/1.33% | $1.52/2.88% |
| Beta | 2.6 | 1.4 | 1.3 |
| Short Interest | 1.38% | 1.41% | 1.17% |
| Book value | $62.51 | $148.41 | $52.02 |
| Price-to-book | 0.76x | 1.01x | 1.01x |
| FY 2013 EPS | $4.72 | 14.39 | $5.74 |
| 2013 P/E Ratio | 10x | 10.5x | 9.2x |
| FY 2014 EPS | $5.43 | 15.28 | $5.98 |
| 2014 P/E Ratio | 8.8x | 9.8x | 8.8x |
| YoY Earnings Growth | 15% | 6% | 4% |
Let’s compare the valuation among the three banks. Based on full-year earnings of $4.72 per share, Citigroup is trading at a discounted 10x price-to-earnings multiple.
Citi’s 2014 earnings are expected to climb 15% to $5.43 per share, offering long-term investors a great opportunity at less than 9x the bank’s 2014 estimates. In contrast to 15% growth at Citi, Goldman Sachs Group Inc (NYSE:GS) and JPMorgan should grow earnings at only 6% and 4% respectively.
Also take note of the annual dividend payouts. Citi investors will benefit from a dividend catalyst, while the dividends at Goldman Sachs and JPMorgan are fully priced.
On a book value perspective, Citigroup shares are the least expensive at 0.76x price-to-book.
Foolish takeaway
The performance of the largest financial stocks may diverge in coming months as the banking industry enters a new cycle. For once, diversification outside the United States can be a good thing.
Readers might consider Citigroup based on its attractive valuation and global footprint. The recent settlement with FANNIE MAE PFD S (OTCBB:FNMAS) is a bigger deal than the market realizes, and will allow management to focus on core profitability. And unlike its peers, Citigroup investors should benefit when the bank restores its dividend to normalized levels in 2014.
In contrast to Citigroup, competitors JPMorgan and Goldman Sachs appear fully priced. Investors should heed their attention to the troubled investment banking environment, which could undermine profitability.
John Macris has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. The Motley Fool owns shares of Citigroup Inc (NYSE:C) and JPMorgan Chase & Co (NYSE:JPM).. John is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Four Reasons to Buy Citigroup and Sell JPMorgan, Goldman Sachs originally appeared on Fool.com is written by John Macris.
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