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JPMorgan Chase & Co. (NYSE: JPM) CEO Jamie Dimon is known for being very direct, and what he had to say from the World Economic Forum in Davos, Switzerland, didn't disappoint. His message on CNBC's "Squawk on the Street" Wednesday came down to five simple words that should be music to the ears of every investor on the planet…
…you ain't seen nothing yet.
Clearly I'm paraphrasing, but there's some real insight in what he had to say.
As always, though, you've got to go beyond the headlines and read between the lines which is exactly what we're going to do today. As always, I've got a recommendation poised for big gains as a result of what everyone else is missing.
Jamie Dimon has a long history on Wall Street that started, ironically enough, with another legendary name, Sandford "Sandy" Weill. Dimon became Weill's protégé after graduating from Harvard Business School in 1983. Technically, Dimon became Weill's assistant at American Express after turning down offers from Wall Street's "holy trinity" – Goldman Sachs, Lehman Brothers, and Morgan Stanley (if my memory serves).
It was a partnership like no other partnership.
Weill, a hard-charging, cigar-chomping financier, and Dimon, an adept thinker capable of brilliantly understanding Wall Street's intricacies almost instantly.
I recall meeting both men in the mid-1980s shortly after they left American Express to take over Baltimore-based Commercial Credit and thinking to myself that they would be unstoppable.
Over the next few years, Weill and Dimon would go on to make deals Wall Street thought impossible before ultimately taking over Citicorp via Travelers Group and falling out rather spectacularly in a story that's best reserved for another time.
What matters is that Dimon's made a career of doing the impossible and anticipating the unthinkable. Examples include persuading former JPMorgan CEO William Harrison to buy Bank One in a $58 billion move that quadrupled shareholder value, to exiting the subprime market, SIVs, and CDO markets at the height of the boom that ultimately led to the Global Financial Crisis in 2008. He even repaid $25 billion in TARP funding early in June 2009, a move that most investors have forgotten.
My point is that Jamie Dimon is not the financial antichrist like most people believe. In fact, I believe he's the only executive on Wall Street today who truly "gets it" when it comes to how money actually works.
So I'm inclined to listen very, very carefully when he speaks.
You should, too.
Speaking to CNBC's "Squawk on the Street," Dimon has picked up on many of the same themes we're following, including, most notably, that he believes Trump-led tax reforms could prompt economic growth of 3% to 4%. That suggests we're in good company.
What's more – and this is the important part – Dimon points out that the real money hasn't yet been put on the table. That'll happen nine to 12 months from now when the "real detail work" gets done – a message you've also heard from me over the last few months.
Here's where it really gets interesting and potentially very profitable.
The Three-Pronged Profit Play Behind Dimon's Words
Dimon went on to say that small banks have been disproportionately hurt by excessive regulation and that they're clamoring for help in an environment that economists tell us has to be low growth.
"I just don't believe that," he noted when anchors pushed him on the subject.
Neither do I.
You get taxes, regulation, healthcare, and more under control, and you get growth. It's a very simple equation, and one that's very profitable if you're prepared ahead of time and investing accordingly.
Seems to me that Dimon's thought very carefully about what's next and where he's going to invest. Watching him speak, I get the sense that he's just itching to make money.
Buying JPMorgan is a good place to start. If there's one thing that Dimon gets better than anybody else, it's how to maximize shareholder returns.
You definitely want a part of that.
However, if you want to play the situation more aggressively, I think you buy the smaller regional banks that understand their local markets, their local customers, and their local lending base.
First, smaller regional banks typically lend to the very people who swept Trump into office and they're likely to be a target for Team Dimon because they're exceptionally profitable. What's more, smaller banks come with little, if any, of the legacy baggage that big bank mergers do.
And second, most acquisitions are done at a premium to where the targeted stock is trading, which means investors can not only tap into the ongoing growth that's made 'em attractive in the first place, but also the premium being offered.
My favorite at the moment is QCR Holdings Inc. (Nasdaq: QCRH).
Founded in 1993 and headquartered in Moline, Ill., the bank has a strong regional lending base in Illinois and Iowa that should grow in line with the broader national economy. I particularly like the fact that the bank considers itself relationship-driven at a time when trust is in short supply.
Ordinarily, I'd be concerned that the market cap is a tiny $547 million and that the PE ratio is slightly higher than I'd like to see at 20.09, but not overly so. Both of those metrics will fall into line as growth continues.
More importantly, though, the company is tapped into one of our six Unstoppable Trends: Scarcity/Allocation. It's a trend that investors often associate with resources or the lack of precious commodities, but what they're overlooking in this case is that money is a resource itself… and one that's backed by trillions of dollars at a time when capital is getting more expensive, I might add.
If you're not comfortable with a single stock, I understand. In that case, consider a regional banking ETF like iShares U.S. Regional Banks ETF (NYSE Arca: IAT), which holds positions in 54 regional banks around the country. You won't get quite the pop of an individual acquisition but, chances are, you won't lose out, either.
I'll be back next week with a look at another great profit play in the headlines.
Until next time,
About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.