5 reasons to buy JPMorgan now
Despite all the headwinds, the bank is still a good choice for long-term investors.
By Philip van Doorn, TheStreet
The dismal year-to-date performance of JPMorgan Chase's (JPM) stock underscores why you should invest in the bank now.
In a few years, you may be looking back at the killing you missed on JPMorgan Chase. The shares are bargain-priced right here, and you can add on the dips.
Shares of the nation's second-largest bank by total assets -- running a close second to Bank of America (BAC) as of June 30 -- closed at $32.30 Tuesday for a 22% year-to-date decline. That compared with a 53% decline for shares of Bank of America, while Citigroup (C) was down 44% to $24.49 and Wells Fargo (WFC) was down 15% to $26.13. The benchmark KBW Bank Index was down 28% year to date, closing Tuesday at 37.45.
So JPMorgan's stock performance measures up decently against the industry's performance.
JPMorgan has seen a slew of analyst cuts to its earnings estimates and price targets. The largest banks are looking at a very rough third quarter for trading and capital markets revenue, along with lower fee income because of new rules limiting what banks can charge merchants to process debit card purchases.
The consensus among analysts polled by FactSet is for JPMorgan to report third-quarter earnings of 96 cents a share, following EPS of $1.27 in the second quarter and $1.01 in the third quarter of 2010.
Here are five reasons to buy JPMorgan Chase now:
5. The shares are cheap. The shares trade for less than six times the consensus 2012 EPS estimate of $5.24, and for just a hair above the company's June 30 tangible book value of $31.52, according to SNL Financial.
4. The dividend ain't too shabby. JPMorgan is paying a quarterly dividend of 25 cents a share, which translates to a not-too-shabby dividend yield of 3.10% based on Monday's market close. That dividend, being comfortably supported even by reduced earnings estimates, for a company trading just above book value which has posted earnings in excess of the 25-cent payout for the past 12 quarters, seems very solid.
3. Buybacks could provide more support for the shares. There could be further support for the shares from significant buybacks, as the company' board of directors has authorized a $15 billion multi-year share repurchase program, "of which up to $8.0 billion is approved by the Federal Reserve for 2011, to, at a minimum, repurchase the same amount of shares that it issues for employee stock-based incentive awards."
2. Analysts love the stock. Despite the revenue headwinds for JPMorgan -- and for all of the large U.S. banks, for that matter -- most analysts are on the JPMorgan bandwaggon. Twenty-two out of 24 analysts covering the company like it as a long-term play. The remaining two have a neutral rating on the shares. The consensus 12-month price target is $48.35, implying 50% upside.
1. Bad headlines are your friends. JPMorgan Chase faces plenty of risk over coming quarters, with plenty of revenue challenges, just like any other large bank, and continued mortgage putback risk, although to a much lesser extent than Bank of America. The coming implementation of the Volcker Rule promises to be a nasty regulatory battle and there will be plenty of headline risk, with additional upheaval in Europe and the likelihood of additional layoffs on Wall Street.
But there's a reason that nearly all of the analysts covering JPMorgan Chase rate the shares a buy. The economic and political upheaval are presenting an amazing bargain for investors. The company has been steadily profitable, the dividend is significant and easily supported even by the expected reduced earnings, and with the endless stream of market gloom, the company trades just above its liquidation value.
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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