The 30 stocks in the Dow Jones Industrial Average are pillars of the U.S. economy and are typically large, reliable American institutions. Surprisingly, even with the U.S. market near all-time highs, Goldman Sachs (GS), JPMorgan Chase (JPM) and International Business Machines (IBM) all still offer buyers excellent bargains.
Goldman Sachs (GS)
Most U.S. business sectors have been firing on all cylinders in recent years, but the financial sector is not one of them. Incredibly, more than seven years after the worst of the Financial Crisis, GS and JPM’s stocks still trade below their respective book value per share.
Big banks’ net interest margins (NIMs) have been hit hard by the double-whammy of stringent post-crisis regulation and lingering historically-low interest rates. After the Fed finally issued its first modest interest rate hike of the new cycle, fears surrounding a possible political push to break up the big banks have kept share prices depressed. Most recently, the Fed chose to delay its next rate hike in the face of global economic uncertainty.
On March 3, UBS senior analyst Brennan Hawken told CNBC that the market is being overly negative on the banks. Said Hawken:
“To me, we’ve priced in a great deal of bad news. Fundamentally, when you look through the loan books, it looks like if we see deterioration, it’s really not going to be that bad.”
All of this negativity has GS shares now trading at a forward P/E of only 8.4, the low end of its historical range and the lowest of all the 30 stocks in the Dow.
JPMorgan Chase (JPM)
Many of the same arguments for the value of GS also apply…
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