Considering the long-term potential, Morgan Stanley trades at a very cheap valuation of 11.8 times 2013’s expected earnings, and at a 20% discount to book value. The company is expected to earn $2.08 for the current year, and the consensus calls for this to rise to $2.55 and $2.91 in 2014 and 2015, respectively, for annual earnings growth of 22.6% and 14.1%. This looks incredibly attractive from a long-term perspective, but before we go jumping in let’s take a quick look at the other major players.
Goldman Sachs Group Inc (NYSE:GS): A Bet on Brains
Every time I hear the name Goldman Sachs Group Inc (NYSE:GS), I remember reading an interview with Warren Buffett shortly after making a huge investment in the company during the financial crisis. The interviewer essentially asked him why in the world he would touch the financial sector, to which he replied that Goldman Sachs Group Inc (NYSE:GS) was “a bet on brains.”
The majority of Goldman Sachs Group Inc (NYSE:GS)’s revenues come from its Institutional Client Services (ICS) segment, and is made up of the revenue that Goldman Sachs Group Inc (NYSE:GS) makes from its market making and execution operations. The company also has investment banking, investment management, and investing and lending segments, each of which contributes about 15% of the company’s revenues. While Goldman trades at just 10.6 times earnings with 11% forward growth projected, investors must take into account that Goldman’s higher leverage ratio as well as its reliance on more risky revenue streams than Morgan Stanley.
JPMorgan Chase & Co. (NYSE:JPM): Is Bigger Better?
JPMorgan Chase & Co. (NYSE:JPM) is one of the largest financial companies in the world with assets of $2.4 trillion. The company operates one of the world’s largest investment banks, as well as an extensive consumer & business banking business. JPMorgan Chase & Co. (NYSE:JPM)’s global footprint grew tremendously as a result of the acquisitions of Bear Stearns (on the investment banking side) and Washington Mutual (on the consumer/business side), both of which were acquired for a fraction of their former value.
At just 9.5 times earnings, JPMorgan Chase & Co. (NYSE:JPM) is the most cheaply valued company here. They also have the most stable operations and most diverse line of products and services offered. Unfortunately, that also means that the company’s projected growth potential is somewhat limited when compared to the other two. Nonetheless, JPMorgan Chase & Co. (NYSE:JPM) is an excellent company and one of the strongest financials in the market.The current valuation makes it very appealing indeed.
Conclusions
None of the three companies discussed here would make a “bad investment” by any definition. While JPMorgan may offer more stability and Goldman may offer the greatest potential for gains, I think that Morgan Stanley is a good combination of risk and stability, and a very attractively valued one.
Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. The Motley Fool owns shares of JPMorgan Chase & Co (NYSE:JPM). Matthew is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Investment Banks Are Cheap Right Now…Here’s How to Play It originally appeared on Fool.com is written by Matthew Frankel.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
