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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Day Traders Diary

JP Morgan Chase

JP Morgan Chase
NYSE Symbol: JPM
Industry: Financials
Price as of 5/11: $36.96


"Sell in May and go away," is in full swing as the major averages are down 3% for the month. The weakness is coming from overseas, particularly Europe. Back here in the US, the sectors getting hit the most are energy, industrials, and materials. Technology continues to perform well even as Apple and Google have succumbed to pullbacks. The financials were also performing great up until Friday when JP Morgan Chase disclosed a derivative trade gone awry costing the firm at least $2 billion and counting. The last bank you would expect such a trade from is JP Morgan, but the trade error is providing a buying opportunity for any long term investors looking to get in the best blue chip bank with a great dividend and plenty of cash to buy back their cheap stock.

Back on April 16th, the nation's largest bank by assets announced first-quarter earnings down 3.1% as legal expenses and debt-related charges weighed, masking a surprise increase in revenue. The company reported earnings of $5.4 billion or $1.31 a share beating estimates of $1.16 a share. Revenue grew 6 percent from last year to $27.42 billion easily beating estimates. One good trend, customers continue to pay credit card bills and mortgage loans on time, which allowed the bank to pick up $1.8 billion from the reserves it had set aside to cover loan losses. JPMorgan Chase issued 6 percent more mortgage loans, and applications for mortgages grew 33 percent as more customers took advantage of historically low rates to refinance their loans. The bank said its mortgage business earned $461 million, reversing a loss in the same period last year. CEO, Jamie Dimon said he was pleased with the results as the company continued to strengthen its "fortress balance sheet." Ironically, analysts and the media asked the company about the big bets taken by one of the bank's traders in London, dubbed the London Whale. Management and even CEO Jamie Dimon dismissed such concerns call them, "a complete tempest in a teapot." However now we know better.

Now that we know the truth, the earnings estimates for this year are a little fuzzy. JP Morgan was on track to make $5 in earnings per share. Next year's earnings per share remains unchanged at $5.60 a share. In fact, with the current pull back, JP Morgan could use some of its' billions to buy back stock at cheap prices which should boost forward earnings making the current PE of 6.6 even more attractive. The dividend yield of 3.2% should limit further downside as well. The stock doesn't go ex-dividend until the first week of July. But long term investors that want exposure to the much improved financial space should take a look at the beaten down JP Morgan Chase. In the short term JP Morgan may come under some more pressure, but long term the bank is well positioned particularly as the housing market continues to slowly improve.
All comments contained herein are for informational purposes only, and should not be considered as a solicitation to buy or sell any security. The firm does not guarantee the accuracy or completeness of the information or make any warranties regarding results from it's usage.