A short-term hit

I’m talking about JP Morgan (NYSE:JPM). The 10% move lower this year carried over some negative sentiment from December last year, when management guided toward higher-than-expected costs of $105bn for 2026. This was put down to heavy investment in AI and expansion initiatives. While those investments may pay off down the road, people tend to punish short-term financial pressures.

On top of that, the geopolitical uncertainty from the conflict in the Middle East hasn’t helped. With the surge in energy prices, there’s some concern it could hamper consumer confidence and spending in the US. This could act to reduce transactional fees for JP Morgan and potentially lead to higher loan defaults if the economy takes a material downturn.

Valuation points

One of the main reasons why I think the stock’s cheap is due to the P/E ratio. At 14.72, it’s well below the S&P 500 average of 23.7. Even though short-term share price movements can push down the ratio, over the long term, this should correct. In order for the ratio to increase, either the stock could increase or earnings could fall. For reference, the stock’s up 37% in the past year.

I also think the drop from the start of the year coud be erased in the coming months. Markets often overreact to rising costs, especially when those are tied to growth. This isn’t a struggling bank trying to cut corners. Instead, it’s a dominant US bank that’s investing aggressively to stay ahead. I don’t see this as a negative for the share price going forward.

Finally, I believe the stock’s cheap because it doesn’t accurately reflect what could happen to interest rates. If the Iran conflict continues, inflation from higher energy prices will likely rise in the US.

To counteract this, US interest rates could rise. This would help boost JP Morgan’s net interest margin (and net interest income). In effect, it could directly act to increase profits this year. I don’t think the share price is anticipating the potential for this to happen.

Direction of travel

Quarterly earnings are due out in less than a week (14 April). I believe these could be a catalyst, especially if costs are well managed and some benefits from AI are already being felt. As a result, it could be a stock to consider adding within the next few weeks.

However, one risk I see is regulatory pressure. As JP Morgan serves a wide variety of clients, the potential for added restrictions on credit cards or capital requirements is high. This could act to hamper revenue growth in the coming years.

Yet despite this, I think the potential rewards still outweigh the concern.

The post Down 10% this year, this S&P 500 banking giant looks super-cheap appeared first on The Motley Fool UK.

I’ve just bought shares in another bank, however. Because looking ahead, I reckon this one has far more growth potential.

The best bank in the world?

The stock I’ve invested in is JP Morgan (NYSE: JPM). Listed in the US, it’s widely regarded as the best banking institution in the world.

What I like about this business is that it has many ways to win. Unlike Lloyds, which is mainly focused on UK lending, JP Morgan can generate revenues from a range of different areas of banking.

One area I’m excited about in 2026 is investment banking. This year is shaping up to be a blockbuster year for IPOs (SpaceX, OpenAI, Anthropic, Databricks, etc). These could generate substantial income for the banks that facilitate the listings. Add in other M&A activity and AI infrastructure investment and revenues in this area of the financial sector could be prolific.

I also like the company’s prospects in wealth management. Today, JP Morgan manages around $5trn in clients’ capital. With markets near all-time highs, fees here are likely to be immense.

Trading is another area that could do well in 2026. I expect to see plenty of volatility in the equity markets this year – this should create opportunities for the bank as investors reposition their portfolios.

Attractive landscape

Looking beyond all these different revenue drivers, the set-up for US banks looks very attractive as we start 2026.

For starters, the ‘yield curve’ is steepening (short-term interest rates are coming down while long-term rates are staying elevated). This backdrop tends to be very profitable for the banks as they typically operate a ‘borrow short term, lend long term’ model with the costs of borrowing lower.

Secondly, the US economy looks healthy. This year, the International Monetary Fund (IMF) forecasts US GDP growth of 2.6% (versus 1.3% for the UK). This should lead to solid levels of lending (which could pick up as rates fall). It should also lead to low levels of loan defaults.

Third, experts expect to see a wave of deregulation for the banks such as lower capital requirements. This could help them compete more effectively with private credit firms and unlock a whole new source of growth.

It’s worth noting that right now, analysts only expect to see 4% earnings growth from JP Morgan in 2026. But I think that growth estimate is very beatable.

Worth a look in 2026

On the downside, this stock is more expensive than some other banking stocks. Currently, the forward-looking price-to-earnings (P/E) is about 16 (versus 10 for Lloyds).

The dividend yield is also a bit lower than many other banks. For 2026, the yield is only about 2%.

In terms of risks, there are few to consider. But these include CEO Jamie Dimon leaving the company, an unexpected downturn in the US or global economy, adverse interest rate movements, and unexpected announcements from US President Donald Trump (like his recent credit card rate announcement).

Overall though, I see a lot to like here. I think this stock is worth a closer look as we start 2026.

The post Forget Lloyds: I just bought shares in another bank appeared first on The Motley Fool UK.

Right now looks like a tricky time for buying shares. In general, prices are higher than they were at the start of July.

Despite this, there are some sectors that have been doing less well lately. And I think that I can find some bargains in these parts of the stock market.

Materials

Stocks in the basic materials sector have struggled lately. These are businesses that produce things like copper, wheat, and gold.

These stocks have been struggling because the price of the commodities they sell has been falling. The price of copper, for example, has fallen by 24% in the last 12 months.

Investors are therefore expecting weaker earnings from companies that mine materials like copper. As a result, the prices of copper stocks have been falling.

I’m looking to use this as an opportunity to add shares in Rio Tinto (LSE:RIO) to my portfolio. At current prices, the stock has a dividend yield of 9.5%.

The company has recently announced that it will halve its dividend payments next year. This isn’t surprising to me, giving the lower iron ore and copper prices.

Copper, however, is crucial to the shift towards green energy. Electrification requires substantial amounts of copper and I think that Rio Tinto stands to benefit from this.

The lower dividend should help me buy shares at a lower price. I’m therefore looking to invest half of my £1,000 into Rio Tinto shares, which I anticipate being a sustainable source of passive income.

Banks

The other sector that I’ve been looking at is financials. In particular, the threat of a recession has been weighing on bank stocks. 

Banks make money by earning interest on the money that they lend out. With the possibility of a recession on the horizon, banks have been required to hold back funds.

Retaining capital instead of lending it out means that banks are unable to use part of their cash to generate income. This is likely to inhibit bank earnings.

Bank shares have been falling as a result. Shares in JPMorgan Chase (NYSE:JPM), for example, have fallen by around 30% since the start of the year.

At these prices, I’d like to add JPMorgan shares to my portfolio. The stock has a dividend yield of around 3.5%.

The risk of a recession weighing on bank earnings is very real. But I see this as a short-term headwind. 

JPMorgan’s cash reserves should see it safely through a recession, should one transpire. And when it does, I think that the bank will continue to be one of the best in its class.

As a result, I’m looking at investing the other half of my available £1,000 into JPMorgan stock in August. 

The post Here’s how I’d invest £1,000 into dividend stocks to generate passive income for life appeared first on The Motley Fool UK.

As a result, there are a number of stocks that I think are materially undervalued at the moment. Here are two passive income stocks that I’d buy with £1,000 at today’s prices.

Greggs

The first passive income stock I’d buy right now is Greggs (LSE:GRG). Until recently, I wouldn’t have thought of Greggs as a passive income stock. But the share price has fallen by around 45% since the start of the year. 

As a result, Greggs shares currently pay a dividend of just over 3%. That’s brought me to start seeing it as an interesting passive income stock.

I also think the stock is significantly undervalued. As of right now, shares have a price-to-earnings (P/E) ratio of around 16. Given the state of the underlying business, I think that’s very reasonable. Revenue and income have recovered well from a pandemic-induced slowdown. 

The risk with Greggs is the possibility of a recession. But even in a difficult economic environment, I think that Greggs will continue to do well.

In my view, consumers might wel delay expensive purchases such as a new car or a house extension. But I think everyday smaller purchases – such as buying lunch at Greggs – will hold up well.

If I’m right about that, then the stock is substantially undervalued right now. With £1,000 to invest in passive income stocks, I’d be happy putting half of it into Greggs shares.

JPMorgan Chase

The other stock is US bank JPMorgan Chase (NYSE:JPM). The JPM share price has fallen by around 28% since the beginning of January. As a consequence, the stock has a dividend yield of 3.5%.

I think that JPM shares are materially undervalued at the moment. The stock currently trades at a P/E ratio of around nine, which is well below its historic average of 12.

By itself, that doesn’t mean that JPM stock is a bargain. The stock is down at the moment because of fears about a recession in the US.

Unlike Greggs, I think that JPMorgan’s business is likely to suffer in a recession. In my view, however, the current share price more than compensates for that risk.

The bank recently passed a stress test, indicating that it is in good financial shape. Furthermore, CEO Jamie Dimon has been saying for some time that the company is getting ready to deal with a difficult economic period.

As a result, I’d be happy to allocate half of my £1,000 to JPMorgan shares right now.

Passive income

Investing £500 into Greggs shares and £500 into JPMorgan shares gives me a reasonably diversified pair of investments that I anticipate generating around £32.50 in annual passive income. I intend to grow that income by reinvesting the dividends that I receive.

Of course, dividends are never guaranteed – but I think that the dividends that each company distributes will increase over time. As Greggs grows its business and economic conditions become more favourable to JPMorgan, I anticipate getting more and more passive income from these two stocks.

The post 2 undervalued passive income stocks I’d buy today with £1,000 appeared first on The Motley Fool UK.

This creates interesting opportunities for investors like me, who are looking for stocks to invest in for the long term. Here are two stocks that I think could be great long-term picks despite short-term headwinds.

JPMorgan

First on my list is JPMorgan Chase (NYSE:JPM). The stock is down 30% since the start of the year.

I don’t own JPMorgan stock in my portfolio. But at these prices, I’m seriously interested in buying some.

The stock is trading at a price-to-earnings (P/E) ratio of around eight. Its historic average P/E ratio is around 12. This is because there’s a risk of JPMorgan’s earnings declining in the near future. I think, however, that the long-term prospects for the business are very good.

JPMorgan has recently been instructed to increase its capital reserves in order to guard against an economic downturn. This is likely to weigh on next year’s profits, since this money can’t be used to generate income.

I think that the bank can withstand the short-term headwinds, though. JPMorgan passed the recent stress test and CEO Jamie Dimon says the company is preparing for an “economic hurricane“.

Once the macroeconomic environment improves, I expect JPMorgan to do very well. With higher returns on equity than either Bank of America and Wells Fargo, I think that this could be a great long-term addition to my portfolio.

NVR

My other stock pick is housebuilder NVR (NYSE:NVR). I own shares in my portfolio and I’m looking to buy more at these prices.

NVR stock has fallen by almost 28% since the beginning of January because of recession fears. This is a genuine risk, but I think that the business has great long-term prospects.

In an economic downturn, house buying in the US is likely to slow down. But NVR is unlikely to get into serious difficulties, having more cash than debt on its balance sheet.

The company also has a distinctive business model. Unlike other housebuilders, such as Lennar and D.R. Horton, NVR buys land only when there is clear demand to build on it.

This limits the risk of NVR spending money developing land that is difficult to sell. And it reduces the company’s risk in a slowing property market.

I think that NVR’s distinctive strategy should allow it to use its excess cash to repurchase shares at low prices. As a result, I think the short-term headwind could set it up for long-term success.

Recession

The threat of a recession is creating interesting investment possibilities for me at the moment. Companies like JPMorgan and NVR are likely to face short-term headwinds.

As a result, their stocks have been falling. But I think that, with high-quality businesses such as these, falling share prices are investment opportunities for me.

The post 2 stocks that are great long-term picks appeared first on The Motley Fool UK.

• The sale of the BT Sport brand and a possible takeover could be positive for the BT share price
• Competition in the telecommunications sector is fierce
• I think now could be a smart time to buy shares

FTSE 100 telecommunications stock, BT (LSE: BT.A) is a big UK player. It operates broadband, mobile and landline networks throughout the country and has a number of recognisable brands, including EE, Plusnet and BT Sport. Recently, takeover rumours have excited investors and the imminent sale of the BT Sport brand has made the BT share price volatile. Let’s unpack these stories and assess the impact these factors might have.

A potential takeover – will the BT share price rocket?

Rumours of a takeover began in mid-December 2021, when French telecommunications billionaire Patrick Drahi increased his stake in BT from 12.1% to 18%. Before long, the market began wondering if Drahi was preparing himself for a takeover. Indeed, takeovers generally lead to a rise in this share price.

While this is a significant stake increase, UK rules prohibit a takeover from occurring until at least June 2022. Some have speculated that Drahi is using a ‘creeping control’ strategy, by slowly buying up more shares. This would ultimately give him control without the costs associated with a bid offer. Whatever the outcome, I will be keeping a close eye on the BT share price between now and June.

One much more imminent move is the sale of the BT Sport brand to US streaming company Dazn. With talks at an advanced stage, it is possible that the deal could be completed as soon as this month.

What’s more, Dazn is apparently willing to pay $800m for the brand. Some of the proceeds may be directed towards lowering BT’s not insignificant debt pile of £18.2bn. It could also improve the company’s free cash flow (FCF). For me, rather than might-not-happen takeover speculation, this sale should positively impact the BT share price. It’s a strong reason why I’ll be buying some shares at the moment.

Competition and inflation

Within the telecommunications sector, BT faces constant competition. In recent months, this has come from Virgin Media O2. While BT plans to install fibre cables to supply 25 million homes by 2025, Virgin Media O2 is already seeking investment to expand and accelerate its own fibre network. Indeed, this could mean that BT might lose the potential custom of 7 million homes where copper lines are due for upgrade.

Elsewhere, the rise in inflation has motivated BT to increase the cost of its phone and broadband services by 9.3%. This strikes me as opportunistic, given inflation will reach about 6% in the spring. Nonetheless, JP Morgan remained “optimistic” in spite of this decision, because other companies in the sector would likely soon follow BT’s price hike.

The sale of the BT Sport brand and the takeover rumours make it an exciting time to be watching the BT share price. This is a competitive sector and the company has had to work hard to stay on track. Nonetheless, I’ll be buying shares now in anticipation of higher free cash flow that could send the stock’s price upwards.

The post Is the BT share price about to take off? appeared first on The Motley Fool UK.

Given the stimulus and falling Covid-19 new cases, many economists expect substantial economic growth. As a result, I’d buy the stocks of three companies at their current share price: JPMorgan Chase (NYSE:JPM), Berkshire Hathaway (NYSE: BRK.B), and Visa (NYSE: V).

A leading US bank

If the US economy strengthens, I reckon leading US bank JPMorgan Chase could benefit from more loan growth and potentially fewer loan losses. Although interest rates are low right now, I think JPMorgan Chase will likely benefit from interest rate normalisation in the future as the economy improves too. Given JPMorgan Chase’s strength, it’s a stock I’d buy at the current price.

If JPMorgan Chase makes more money, the potential for capital returns through dividends and share repurchases likely increases. Presently, the bank pays a quarterly dividend of $0.90 per share, which is a yield of around 2.3% at current prices. With more earnings, JPMorgan Chase could raise its dividend in the future. 

JPMorgan Chase could have potential downside if the bank doesn’t make good loans or if its earnings don’t meet expectations. Many financial bank shares have historically declined during recessions and financial crises, and JPMorgan Chase could be one of them.

Warren Buffett’s company

Another stock I’d buy at the current price as another economic recovery play is Warren Buffett’s Berkshire Hathaway. I reckon Berkshire Hathaway will benefit from the eventual interest rate normalisation through its ownership of leading insurer GEICO and from a recovering US economy through its ownership of railroads.

Lately, Berkshire Hathaway has repurchased a lot of stock. In 2020, for example, Berkshire Hathaway bought back $24.7bn and there could be more on the way. Buffett said in his annual letter, “Berkshire has repurchased more shares since year-end and is likely to further reduce its share count in the future”. Given Buffett’s past track record of buying stocks, I view his buybacks of Berkshire Hathaway is a positive sign for the stock in the future.

With that said, Berkshire Hathaway shares could decline if the economy doesn’t do well.

Visa

Visa benefits from the US stimulus package and a recovering global economy in multiple ways. With the $1,400 stimulus checks for US citizens, many people will likely spend that extra money through Visa credit cards and thus give Visa incremental sales. Given a substantial percentage of consumer spending is now digital, Visa can also benefit from the rise of e-commerce too. If the global economy strengthens, digital spending could increase and Visa will likely benefit through credit card transaction fees.

Although it has a wide moat given the network effects of having so many users and merchants that use or accept Visa, Visa could have potential downside from future fintech competitors. With a forward price-to-earnings ratio of nearly 31, I think Visa will need to continue to show strong results to do well.

The post 3 economic ‘recovery’ stocks I’d buy today appeared first on The Motley Fool UK.