Analysts at Goldman Sachs on Tuesday offered some sharply diverging opinion on financial services giants JPMorgan Chase & Co. (JPM) and Morgan Stanley (MS).

JPM Now a “Conviction Buy”
The firm upgraded JPM to its “Conviction Buy” List with a $42 price target, suggesting a 19% upside to the stock’s Monday closing price of $35.32.

A Goldman analyst commented, “Since JPM announced the trading loss on May 10, shares have materially underperformed peers, down 13% versus the BKX down 6%. We continue to believe JPM has the earnings power and capital strength to offset the trading loss, given a diverse earnings stream (CIO is only 5% of average EPS), and strong capital position (9%+ Basel 3 Tier 1 Common by 2013 even with capital distribution), and believe the core strength of the franchise is being overlooked.”

Morgan Stanley Cut to “Neutral”
Meanwhile, Goldman Sachs downgraded MS from its “Conviction Buy” List, slapping a “Neutral” rating on the stock. The firm also cut its price target for MS from $20 to $16. That new target suggests a smaller 19% upside to the stock’s Monday closing price of $13.48.

The analyst commented, “While our 2012 earnings estimates for MS already reflect the current challenging environment, as the most pure-play capital markets bank under coverage we believe investors are unlikely to give credit for any significant improvement in activity in 2013.”

JP Morgan shares rose 58 cents, or +1.6%, in premarket trading Tuesay, while Morgan Stanley shares fell 16 cents, or -1.2%.

The Bottom Line
Shares of JP Morgan (JPM) have a 3.40% dividend yield, based on last night’s closing stock price of $35.32. The stock has technical support in the $31-$32 price area. If the shares can firm up we see overhead resistance around the $38 price level. Shares of Morgan Stanley (MS) have a 1.48% dividend yield, based on last night’s closing stock price of $13.48. The stock has technical support in the $12 price area. If the shares can firm up we see overhead resistance around the $16 price level.

JPMorgan Chase & Co. (JPM) and Morgan Stanley (MS) are both currently rated “Neutral” by Dividend.com.

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