Buying a Bank? My Vote is for JPMorgan Chase

I get a lot of questions about bank stocks- have we seen a bottom? Is it safe to start nibbling? What bank is the cheapest? And while the financials are not my favorite sector right now, I think that if you have a longer term investment horizon, JPMorgan Chase (JPM) is the bank stock that should take a look at.

Just an aside – There seems to be a lot of confusion about what it means for a stock to be “cheap.” People often say things to me like – "but WaMu (WM) is trading at 4 dollars, don’t you think it is really cheap right now?” First of all, the nominal value of an individual stock has nothing to do with how cheap or expensive a stock is. This argument cannot even be made from a market cap perspective, as a lower share price does not mean a “smaller” company because the number of share outstanding varies greatly from stock to stock. If you are going to talk about how cheap a stock is, you need to base that argument on a comparable metric -such as P/E, fP/E, P/S, P/BV, ROE, etc. - and then look at that metric with regards to how risky the stock is. So the per share price has nothing to do with how “cheap” a stock is. I know why so many people think this; in the real world it is perfectly logical for someone to consider a pen that costs 4 dollars to be cheaper than one that costs 200 dollars. But that is the type if thinking that will get you in a lot of trouble in the investing world.