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What Makes Bank of America a Better Stock than JPMorgan?

JPM BAC

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Banking sector, which has been facing tougher operating and regulatory environment till now, is likely to benefit under President Donald Trump’s regime. Trump is in favor of lesser number of regulations for the banks. In addition, as per the CME Group data, the odds of a December rate hike, is now over 75%. So, with a rise in interest rates, banks’ earnings will improve.

Therefore, it’s a good time to add a few banking stocks in your investment portfolio. While several banking stocks look promising based on growth prospects and strong fundamentals, today we are checking out two large global banks – Bank of America Corporation (BAC - Free Report) and JPMorgan Chase & Co. (JPM - Free Report) .

BofA, headquartered in Charlotte, NC, and JPMorgan based in New York, have market capitalization of 189.9 billion and $276.8 billion, respectively. Moreover, both are part of the ‘Major Regional Banks’ industry, which has a Zacks Industry Rank #37 (top 13%).

BofA was up nearly 11%, while JPMorgan surged over 16%, year to date. While the business of both the banks is almost similar, let’s dig deeper into to the fundamentals and see why BofA is a better investment option than JPMorgan.

Earnings Growth: BofA has witnessed nearly 8% increase in earnings per share over the last three–five years (compared with a marginal 0.1% for JPMorgan). Moreover, earnings are expected to grow at the rate of 12.1% for the current year (as against nearly 3% for JPMorgan).

Further, BofA’s current year earnings growth rate is superior as compared with the industry average growth rate of 3.8%.

Also, the earnings growth momentum is anticipated to continue as BofA earnings is likely to increase 7% over the next three–five years, while JPMorgan is expected to witness 5.9% growth over the same time frame.

Valuation Looks Compelling: Both BofA and JPMorgan are undervalued with respect to their respective Price-to-Earnings (P/E) and Price-to-Book (P/B) ratios. BofA has a P/E ratio of 12.24 (and JPMorgan has 12.51), compared with the industry average of 14.28. Also, BofA’s P/B ratio of 0.70 (and JPMorgan’s 1.11) is below the industry average of 1.17.

However, if we take in to consideration the PEG ratio, JPMorgan is slightly overvalued as compared with BofA. The PEG ratio for BofA is 1.75 and for JPMorgan its 2.14 as compared with industry average of 2.12.

VGM Score: Our research shows that stocks with a VGM Score of ‘A’ or ‘B’, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer the best upside potential.

Currently, BofA has a VGM Score of ‘B’ and carries a Zacks Rank #2.  On the other hand, JPMorgan, despite having the same Zacks Rank as BofA, has a VGM Score of ‘F.’

You can see the complete list of today’s Zacks #1 Rank stocks here.

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