It's no secret that I've been hard on banks in the last two
years and have told my subscribers to avoid them at all costs.
After all, the major banks and financial institutions were the
ones that caused the worst credit crisis in history. Smart
investors had no place investing in them.
Well, we just passed the two-year anniversary of the Lehman
Bros. bankruptcy and it got me thinking: Has enough time
passed to invest in banks? Have they cleaned up their act?
In September 2009 - one year after Lehman's bankruptcy - I put
two iconic banks head to head to see if either was worth owning.
The common thinking was that banks had been beaten down so bad
that they eventually had to come back. Buying a rebound can be
very profitable, but my findings showed that it was not the time
). However, my research revealed that it was an appropriate time
to buy another bank stock,
). My exact words were: "
Don't touch Citigroup with a 10-foot pole, and
buy JPM very cautiously.
So was I right? Just about a year has passed since then, and
the only way to find out is to look at the past year's
Citigroup closed at $4.12 and JPMorgan closed at $28.39 on
Sept. 15, 2009, the day I released that advice. Today, Citigroup
and JPMorgan closed at $4.06 and $37.69, respectively.
That means that if you had bought those stocks on that day,
one year later you would have posted a 1.5% loss in Citigroup and
a 32.8% gain in JPMorgan.
Citigroup just reported its third consecutive profitable
quarter and surprised analysts and investors in the process. It's
a great milestone for the company and a positive sign for the
recovery, but sales growth, margins growth and return on equity
are still behind the curve. So my verdict stays the same: Avoid
Is the same true for JPMorgan? The short answer is yes.
However, some bright spots do exist in its stock report. Margins
growth, earnings growth, earnings surprises and even cash flow
are all strong. I would like to see more buying pressure and
sales growth before I recommend this stock but all indicators are
hinting at a rebound for this company.
The bottom line is that there is still work to be done for the
major financial institutions before you should consider buying
them. Tax payers still own chunks of some of these companies and
until the banks have repaid that money and started back on their
growth trajectories, I will continue to be wary of the