When a Rising Tide Lifts All Boats, Buy the Best Boat

Investors have to pay up for quality. That tends to be worth it in time, as buying the best company in a sector can provide excess returns.

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  • In the past few trading sessions, the biggest Wall Street banks have been reporting earnings. Most have beaten earnings, as well as provided a buoyant outlook and reduced loan loss reserves, a sign of long-term financial health.

    While investors may think all big banks are the same, that’s not always the cases. Some banks have been out of favor with the market, but most have done well.

    Among the best-performing banks, JPMorgan Chase (JPM) had some of the best quarterly returns. It’s also been one of the best-managed big banks, a fact that has led to great returns over time.

    Shares trade at 10 times earnings, a solid dividend of 2.4 percent, and shares are on the uptrend while still trading a hair off their all-time highs.

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  • Action to take: The company’s solid dividend and modest dividend growth makes for an attractive long-term holding for those looking for a big bank player.

    For traders, shares are likely to continue moving higher. Looking into a year-end holiday rally, the January $175 calls look like a solid trade here. Last going for about $2.75, the option could deliver mid-to-high double-digit returns in the weeks ahead if shares continue higher.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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