JPMorgan On Finance Stocks In 2021: Why It's Bullish On Credit Cards, Cautious On Mortgages

Financial sector stocks have been red-hot since the November election led by bank stocks as investors become increasingly optimistic about the impact of another large stimulus package, a resumption of buybacks and a longer-term economic recovery.

On Tuesday, JPMorgan updated its coverage of consumer finance stocks by issuing several upgrades and downgrades and said there are plenty of areas to love and plenty to hate in the space in 2021.

The Analyst: JPMorgan analyst Richard Shane issued the following ratings changes on Tuesday:

• American Express Company AXP upgraded from Underweight to Overweight, price target raised from $105 to $148.
• Synchrony Financial SYF upgraded from Neutral to Overweight, price target raised from $28 to $46.
• Santander Consumer USA Holdings Inc SC upgraded from Underweight to Neutral, price target raised from $23 to $26.
• Navient Corp NAVI downgraded from Overweight to Neutral, price target raised from $12 to $12.50.
• Essent Group Ltd ESNT downgraded from Overweight to Neutral, price target raised from $50 to $52.
• Guild Holdings Co GHLD downgraded from Overweight to Neutral, price target raised from $18 to $18.50.
• Rocket Companies Inc RKT downgraded from Overweight to Underweight, price target cut from $26 to $20.
• Related Link: Analyst Upgrades JPMorgan, Downgrades US Bancorp As Bank Stocks Soar

The Thesis: In the note, Shane said he is increasingly optimistic about the U.S. macroeconomic outlook, a view that bodes well for credit card stocks like American Express.

“Our increasingly optimistic macro outlook is consistent with improving forecasts of unemployment and GDP and a steepening forward 10YT curve,” the analyst said. 

The consumer finance group as a whole should witness between 10% and 15% earnings multiple expansion by the end of 2021, he said.

Shane also named OneMain Holdings Inc OMF as his top overall consumer finance stock pick given its leading return on equity, its non-bank structure and low double-digit dividend yield growth potential.

At the same time, Shane said student lending stocks will be subject to policy headline risks under the Joe Biden administration, and he is getting increasingly cautious on the potential negative impact a spike in interest rates could have on the mortgage market.

Benzinga’s Take: JPMorgan’s economic outlook is great news for banks, credit card companies and the economy as a whole. Unfortunately, the forecast is less bullish for Rocket and any other companies that benefit from extremely low interest rates.