We recently compiled a list of the 10 Best Credit Card Stocks to Buy Now. In this article, we are going to take a look at where JPMorgan Chase & Co. (NYSE:JPM) stands against the other credit card stocks.
The market for credit card issuance services has expanded significantly over the last several years. At a CAGR of 9.2%, it will grow from $478.09 billion in 2023 to $522.22 billion in 2024, according to the Business Research Company. Over the coming years, a significant expansion in the market size for credit card issuance services is anticipated. At a CAGR of 8.3%, it will increase to $717.7 billion in 2028, as per the research. Contactless payment usage, data security concerns, cryptocurrency emergence, embedded finance, customization, and personalization are all factors contributing to the growth in the projection period.
The credit card market is still changing, mirroring changes in customer preferences and general economic conditions. According to the Q4 2023 Quarterly Credit Industry Insights Report (CIIR), the average credit card debt per borrower at the end of 2023 was $6,360, a 10% rise YoY. This resulted in a total of $1.13 trillion in credit card debt in the United States the same year. Moreover, the average amount owed by households in the 90th percentile is $11,210, with higher-income households often having larger loads.
According to TransUnion, credit card usage continues to rise, with 167.2 million users expected by mid-2023, representing a substantial rise over the last three years. Furthermore, according to the Federal Reserve Bank of San Francisco, credit cards accounted for 31% of all payments in 2022, although less than 10% of Americans typically utilized cash, according to a December 2023 Forbes Advisor survey.
As per the Federal Reserve Board, credit card delinquency rates have been rising gradually and will reach 3.1% by the end of 2023, the highest level since 2011. Additionally, charge-offs rose in Q2 2024 from 4.16% to 4.38%, a record high of 12.5 years that hasn’t been seen since Q4 2011. Meanwhile, according to Forbes Advisor, the average credit card interest rate in March 2024 was 27.89%, putting financial strain on people with balances.
In the future, digital payment methods are expected to gain popularity; according to a survey conducted in August 2023, more than half of customers preferred digital wallets over traditional cards. This change shows that credit card companies will continue to innovate, even as concerns about interest rates and debt levels persist.
Overall, as we have also mentioned in our article, “7 Best American Bank Stocks To Buy According to Hedge Funds,” the U.S. market for digital banking platforms was estimated at $1.04 billion in 2024 and is projected to grow at a CAGR of 9.63% to reach $2.04 billion by 2031.
Looking forward, according to a report, credit card spending is predicted to increase in the mid-single digits by 2024, while balances will fall to the mid-to-high single digits after a substantial rise since 2022. If labor markets are steady, credit performance measures are expected to decline during 2024 and stabilize by early 2025. Despite lower inflation, key problems include resumed student debt payments, high interest rates, and growing living costs.
Yanni Koulouriotis, CFA, Vice President – Global FIG stated:
“Overall, DBRS Morningstar expects a less favorable operating environment for credit card issuers in 2024 as consumer dynamics shift and are less of tailwind to credit card issuer performance. While we expect weaker financial performance in 2024 compared to 2023, we still expect performance to be supportive of current credit ratings.”
Methodology:
We sifted through holdings of credit card ETFs and online rankings to form an initial list of 20 credit card stocks. Then we selected the 10 stocks that were the most popular among institutional investors. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024. We have used the stock’s market cap as a tie-breaker in case two or more stocks have the same number of hedge funds invested.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
A group of business people discussing plans around a boardroom table adorned with a financial services company logo.
JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Investors: 111
As the most profitable bank in the United States, JPMorgan Chase & Co. (NYSE:JPM) is unquestionably one of the “Biggest Financial Firms in the World,” with a market capitalization of $619.19 billion.
It is divided into four main sections: asset and wealth management, corporate and investment banking, commercial banking, and consumer and community banking. JPMorgan is regulated in multiple countries where it conducts business.
It is also an industry leader in total assets, dominating both investment and commercial banking. Its standing has been strengthened by its profitable ventures into credit cards and auto loans, as well as thoughtful fintech initiatives.
Among credit card issuers, JPMorgan Chase (NYSE:JPM) is the biggest. Just last year, 10 million new accounts were opened, and there are currently over 150 million cards in use. Although it gave $239 billion in new credit to individuals in 2023, it amounted to only 10% of the $2.3 trillion it gave to all clients, including companies, non-governmental organizations, and the government itself.
It should be mentioned that the company anticipates a rise in the number of credit card defaults by customers. Last year, its provision for credit card losses grew by 80%, reaching $6 billion. Nevertheless, it is a financial giant, too big to fail due to its dominant position in the banking industry.
The financial firm is attracting the eye of analysts. Despite market headwinds, Piper Sandler maintained its Overweight rating and $230 price target for the US-based company, highlighting the bank’s capacity to outperform competitors. The company does not foresee any major changes to JPM’s outlook and commended the bank for its effective risk profile, leading profitability, and cautious prediction.
Deutsche Bank, on the other hand, downgraded the company from Buy to Hold but maintained its target price of $235. The firm recognizes JPM’s year-to-date performance, outstanding credit quality, and higher-than-expected net interest income, but it sees little room for further increase. Reacting to growing unemployment, major firms like JPMorgan anticipate that the Federal Reserve will cut interest rates in September.
Carillon Eagle Growth & Income Fund stated the following regarding JPMorgan Chase & Co. (NYSE:JPM) in its first quarter 2024 investor letter:
“JPMorgan Chase & Co. (NYSE:JPM) contributed positively to performance following solid financial results and positive guidance for the remainder of 2024. Moreover, growing chatter around rising capital markets activity likely contributed to the stock’s strong performance relative to other banks. Recall that JPMorgan has a robust capital markets franchise.”
Ken Fisher’s Fisher Asset Management is the largest shareholder in the company, with 12,740,431 shares worth $2.58 billion.
Overall JPM ranks 3rd on our list of the best credit card stocks to buy. While we acknowledge the potential of JPM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than JPM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
