If you’ve been waiting for the three bank stocks I added to Jim’s Watch List on June 25 see my post https://jubakpicks.com/2010/06/25/financial-reform-wont-hit-the-big-banks-anywhere-near-as-hard-as-wall-street-wants-you-to-believe/ )to sell off before putting in a bid, this earnings season may give you the opportunity you’ve been waiting for.
Well, for two of the three anyway. Wall Street analysts have hugely optimistic earnings forecasts out on JPMorgan Chase (JPM) and Morgan Stanley (MS) that the banks are extremely unlikely to meet. Goldman Sachs (GS), the third U.S. bank on my watch list is expected to report a big drop in earnings—but investors who bid the stock up today seem to be counting on Goldman to pull a surprise out of its earnings report. If it simply meets low expectations, these shares too could sell off.
The consensus among Wall Street analysts right now calls for second quarter earnings to be up by 164% at JPMorgan Chase and by 138% at Morgan Stanley when the two banks report on July 15 and July 21 respectively. (Wall Street is looking for a 46% drop in Goldman’s earnings when it reports on July 20.)
There’s a good chance, though that those estimates of earnings growth are going to be massively high thanks to a big drop in trading income due to tougher market conditions in the second quarter of 2010. Banks are facing especially tough year-to-year comparisons for the second quarter of 2010 since the second quarter of 2009 was nearly a perfect trading environment as the financial markets continued a non-stop rally off the March bottom.
According to estimates from Bloomberg, earnings at Goldman will fall the expected 46% and earnings at JPMorgan Chase will climb just 22% instead of the projected 164%.
On any sell off on disappointing earnings, I’d look to JPMorgan Chase for my first buy.
rolfer1,
Every major Wall Street investment bank has a high frequency / computerized trading desk, of course including the ones you mentioned. I doubt you’ll be able to find their profits directly from this strategy, as it is probably lumped in with the rest of trading with the firm’s capital.
Jim, the current market is being driven by “high-frequency” computerized trading — do MS or GS have anything to do with this trading and/or do they make any money from these trades? Appreciate your input on this since the individual investor, as you note, is not trading at former frequencies.
jamba,
In general, I wouldn’t touch transportation stocks with a 10 foot pole. With a weak world economy, they will be the ones to suffer the most. However, as they start to come down, look for opportunities among companies with “route monopolies”. Alaska Air comes to mind.
organicbob,
Jim is comparing this quarter estimate to the same quarter a year ago.
Not sure where Jim is getting his numbers from, but the earnings site shows an estimate of .82c which is .18c over last Q so don’t undertand how that translates to a 164% increase.
“JPM Q2 2010 JPMorgan Chase & Co. Earnings Release EST: $ 0.82 TO BE RELEASED ON 15-Jul-10 6:30 AM”
Jim,
What about some foreign investment banking business’ such as BCS and CS? I am thinking that CS is the best in the space. IS Fin Reg going to help these business’? CS has great franchise and great capital ratios.
Thanks
Ed,
What are your thoughts on transportation stocks? In particular CNI and EXPD.
Thanks
Greetings Jim,
I see one whisper number for JPM at 15% over consensus and think that might be enough to trigger movement should they miss or barely meet consensus projections. However, apparently today’s bank rally was triggered by State Street, which reported strong results and jumped 10% (to JPM’s 5%). I read that STT may have done well in currency trading… Is JPM in a substantially different position from STT?
Meanwhile, your suggestion of May 28 on STD paid nicely today! Thanks!