JPM Net Income (Quarterly) data by YCharts .
In this category, the contest is cut and dry. JPMorgan is more profitable than Bank of America.
But Bank of America is so cheap
Over the past 10 years, Bank of America's stock is down 71% and is 74% off its all-time high. JPMorgan's stock is up 56% over the past 10 years, besting B of A but still trailing the S&P 500 by 19%.
To compare the two valuations on comparable footing, we can use the price to book value ratio. Bank of America trades at a price to book ratio of 0.61 times at the time of this writing, while JPMorgan trades at 1.0 times its book value.
Typically, a price to book value ratio above 2.0 times is considered expensive, and a ratio below 1.0 times is considered cheap. By this conventional wisdom, both banks are cheap, but Bank of America is very cheap.
JPM Price to Book Value data by YCharts .
So cheap, in fact, an investor may be tempted to buy the stock on that basis alone. Keep in mind, though, that Bank of America's price to book value ratio has not risen above 1.0 since 2008. It is cheap today, but it's been cheap for a long time and shows no signs of commanding a premium any time soon.
For the long-term investor, JPMorgan Chase is the proven winner
In 1990, Warren Buffett wrote that he has "no interest in purchasing shares of a poorly managed bank at a 'cheap' price. Instead, our only interest is in buying into well-managed banks at fair prices." That wisdom rings true to me in this case.
To buy a stock for the long term, an investor must be confident that a company will be able to consistently deliver results year after year. A single bad quarter is not necessarily a big deal, but a pattern of missteps and disappointments is of concern.
To me, Bank of America's performance is simply not consistent enough to justify an investment at this time, even at its rock-bottom price. Over the long term, I think JPMorgan has proven itself as the better-managed, more consistent stock. It's known for its strong risk management, has better profitability, and at a valuation of just 1.0 times its book value, I think its stock is very fairly priced.
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Jay Jenkins has no position in any stocks mentioned. The Motley Fool recommends Bank of America. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
