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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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Stock of the Week

JP Morgan Chase

September 17th 2010 JP Morgan Chase
NYSE Symbol: JPM
Industry: Banking
Price as of 9/17: $40.06

The major averages continue to perform well with the Dow up 6% for September. Part of the reason the Dow is performing well is due to the dividend stocks within the average. Verizon, AT&T, Kraft, Altria, and Philip Morris have all made new 52 week highs in the last several weeks. One sector that used to provide great divides is the financials. As we all know the major banks all cut their dividends to pennies per share, but that trend should change next year. This week we'll feature probably the best large cap bank that made comments this week that they'll raise their dividend once again next year. The stock of the week is JP Morgan Chase. We featured JP Morgan in July of last year. Since then the stock is up over 10% not including a modest dividend. But as mentioned, JP Morgan this week at an analyst meeting was confident they would raise their dividend in early of 2011 in a material way and eventually pay out a dividend ratio of 30-40% of normalized earnings. That's a good sign for the long term health of the financials and JP Morgan's stock .
Back in July JP Morgan Chase, the second largest U.S. bank based on assets, easily beat earnings estimates while reporting in-line revenue. JP Morgan reported earnings of $4.8 billion or $1.09 per share, beating estimates by 39 cents. The big beat was due to a large reduction in loan loss reserves and 14 cents from a U.K. bonus tax, Revenues fell 7.6% year/year to $25.61 billion in line with estimates. Credit loss provisions fell 65% to $3.4 billion, reflecting improved delinquency trends and reduced net charge-offs; Nonperforming assets grew to $18.2 billion, up from $17.5 billion, down from 19.0 billion. Tier 1 capital rose to 12.1% verse 11.5% in the first quarter and 9.7% in the second quarter of 2009. Tier 1 common was 9.6% verse 9.1% in the first quarter and 7.7% in the second quarter 2009. JP Morgan continues to maintain a very high liquidity level, with a deposit-to-loan ratio of 127%. Thanks to their strong capital levels, JP Morgan has reinstated their share buyback plan, spending $500 million year to date. That's a good sign for the stock providing support to the downside.
JP Morgan's stock ran up earlier in the year, but has pulled back recently. Currently the stock trades for 11 times 2010 earnings and 8 times next years earnings. The stock also trades for 2 times sales and one times book value of $41 a share. And the book value will keep going higher as the bank's profits rebound. Buying the stock ahead of the dividend increase could provide good capital appreciation between now and then plus a nice dividend yield for long term investors.