7 Reasons Why I'm Buying JPMorgan
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With the S&P 500 sitting near 1,400, I am cautious of entering many stocks. Particularly, I am wary of the financial sector, which often leads the market – both down and up.
That said, I am drafting my wish list in case the markets begin to pull back. What stock sits near the top? JPMorgan Chase (NYSE: JPM).
Last fall when the markets seized, I bought up JPMorgan in the 28 and 29 range, and then into the low-30s. In 2012, the company hovered in the mid-40s until the trade from our friend “London Whale” was finally exposed.
Though JPMorgan has taken quite a hit, and could face even more downside in a market pullback, I am bullish.
- CEO Jamie Dimon – Jamie Dimon is an incredible CEO. He was trained by former King of Wall Street Sandy Weill, who built the Citigroup empire. Dimon first joined JPMorgan in 2004 when it merged with Bank One. Since then, Dimon has steered the company through the credit crisis, as well as through acquisitions of Bear Stearns (which happened over a weekend) and Washington Mutual. Moreover, Dimon recently purchased an additional $17 million in JPMorgan stock, bringing his total ownership of the company to near $200 million.
- Chase Bank – Chase bank provides JPMorgan with access to customer deposits and instant liquidity. The growing retail practice is a staple of JPMorgan and provides increased market share and steady profits. More importantly, the retail exposure gives JPMorgan a hedge against the Volcker Rule, which limits banks from trading deposits.
- Strong Private Bank – Goldman Sachs (NYSE: GS) already announced that it is opening a private bank to target its wealthiest clients, in response to the Volcker Rule. While Goldman manages wealthy clients’ money, it now plans to lend to its wealthiest clients. But JPMorgan is already there. As of May, JPMorgan boasted $830 billion in client assets, and the bank has arguably the best private bank on Wall Street, according to the EuroMoney awards.
- Dividend Yield – JPMorgan throws off cash at an incredible rate. The bank boasts a 3.30% dividend yield, far higher than either Bank of America (NYSE: BAC) or Citigroup (NYSE: C), both of which are still recovering from the financial collapse.
- Stupid-Cheap Price to Earnings – JPMorgan’s trailing P/E ratio is a mere 8.64. For comparison, Wells Fargo’s (NYSE: WFC) is 11.34, Goldman’s is 15.33. JPMorgan’s sits closer with mending Citigroup’s and Bank of America’s than it does with its stronger peers.
- Aversion to Risk – When most of Wall Street was underwriting toxic mortgages in the mid- to late- 2000s, JPMorgan began to exit the business when Dimon feared a market correction. While the bank did not come out completely unscathed, it did emerge with enough strength to make the two value-adding acquisitions (Bear Stearns buildings alone were worth more than what JPMorgan initially paid for the company). And while JPMorgan was not on par with Goldman in creating and dealing credit default swaps, it wasn’t sunk by those contracts, either.
- Increased Merger & Acquisition Activity – As the world economy continues to improve, M&A will pick up. Right now deal making is slow. A July 2 article from the New York Times paints the picture:
Only the announcement of a few transactions on Friday, notably Anheuser-Busch InBev’s $20.1 billion takeover of Grupo Modelo, prevented the second quarter and first half of the year from looking even worse.
Including that acquisition, the dollar volume of deals fell 21.9 percent from the first half of 2011, to $1.1 trillion, according to data from Thomson Reuters. The number of announced deals slipped 17 percent, to 17,826.
“It’s been a stop-and-start sort of year,” said James C. Woolery, a co-head of North American mergers at JPMorgan Chase. “There hasn’t been consistent momentum, though there have been some good deals.”
But when deals pick up, JPMorgan will profit. Currently the bank ranks third, according to the New York Times in terms of number of deals, value of deals, and investment banking market share, lagging only Goldman and rival Morgan Stanley.
Overall, I hope to see JPMorgan take a short dip before resuming its track back to the mid-40s and perhaps even into the 50s. If a dip comes, I will certainly be buying.
ChrisMarasco is long JPM, BAC, and GS. The Motley Fool owns shares of Bank of America, Citigroup Inc , JPMorgan Chase & Co., and Wells Fargo & Company and has the following options: short OCT 2012 $33.00 puts on Wells Fargo & Company and short OCT 2012 $36.00 calls on Wells Fargo & Company. Motley Fool newsletter services recommend Goldman Sachs Group and Wells Fargo & Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.