Today, the financial sector found reason to celebrate as both J.P. Morgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) topped earnings expectations:
- Compared with Q3 2011, J.P. Morgan’s sales climbed 6% to $25.15 billion; this beat the consensus estimate by 2.5%. Over the same period, net income jumped 33% to $5.7 billion, or $1.40 per share—analysts forecast earnings of $1.02 per share so JPM posted a 37% earnings surprise.
- Wells Fargo’s sales advanced 8% year-over-year to $21.21 billion, missing the consensus estimate by a hair. Meanwhile, net income jumped 23% to $4.72 billion, or $0.88 per share. This just beat the $0.87 consensus.
Now the reason that these companies did so well was that the low-interest rate environment sparked a surge in refinances and this has propped up these companies’ mortgage businesses:
- JPMorgan Chase announced a 72% surge in mortgage revenue.
- Wells Fargo posted a 50% jump in mortgage banking revenue.
At the same time, these companies are still combating challenges such as lower fee income and stagnant growth from fixed-income and equity-markets businesses. So there are still plenty of uncertainties surrounding these companies to keep me from buying. There’s good reason that the financial sector only appreciated in the single-digits over the past year, and I don’t expect this trend to turn around anytime soon.
The way I see it, while these earnings announcements have got investors talking, there are better ways to profit from the housing comeback. For example, in my Emerging Growth newsletter, I have no fewer than six housing plays, from homebuilders to insurance companies to a mortgage automation software company. My Blue Chip Growth readers have been buying shares in a mortgage REIT with a hefty 15% annual dividend yield, a home improvement retailer and two construction materials suppliers.
And from thrifts and mortgage companies, to real estate management firms to construction materials companies, my Portfolio Grader tool lists a slew of A- and B-rated stocks tied to the housing recovery. So before you place that buy order for one of the big banks, I recommend that you take a close look at what is really fueling the financial sector and zeroing in on the niche companies that stand to profit even more.
Have a great weekend,