Generally, banking stocks (XLF) trade between 1x and 2x their book values. Stocks trading lower than their book value attract investor attention because they’re considered to be generating extremely poor returns. The PBV (price-to-book value) compares a company’s current market price to its book value. These ratios are commonly used to compare financial services firms because most banks’ assets and liabilities are constantly valued at market values. If a company trades lower than its book value, it means that either the asset value is overstated or the company is generating a poor return on its assets.
Shares of JPMorgan rose 35% in 2016 and outperformed its banking peers. JPMorgan offers an attractive combination of reasonable valuations, attractive dividend yields, and a large-scale share buyback program.