Shares in JPMorgan Chase & Co. (NYSE:JPM) hit all-time highs after the nation’s biggest bank by assets made a huge bet on housing, but with JPM stock starting to take out Wall Street price targets, further upside might be harder to come by.
JPM stock was having a quiet and disappointing year up until late April, when surprisingly strong quarterly earnings appear to have reversed sentiment on the name.
Indeed, as recently as three weeks ago, JPM stock was negative for the year-to-date. But after entering a mini-rally at the end of April, JPM stock is now up 5% for the year-to-date, beating the S&P 500 by 2 percentage points.
The market certainly likes JPM’s latest big bet on the housing market. On Thursday, JPM said it bought the mortgage servicing rights (MSRs) for 266,000 high-quality Fannie Mae loans worth an estimated $45 billion from a subsidiary of Ocwen Financial Corp (NYSE:OCN)
JPM said that the acquisition will improve the quality of its servicing portfolio and drive a stronger and less volatile mortgage business. That’s music to investors’ ears with the housing market moving in fits and starts.
Although JPM stock started picking up before the Ocwen deal was announced, it’s sort of emblematic of the types of important, incremental improvements seen across the banks many businesses.
JPM Finally Catches Some Breaks
As much as JPM has been hampered by legal costs over the past few years, that hasn’t been the big drag on the stock.
What is the problem, then? Try JPMorgan’s underwhelming profit and revenue growth in a stumbling economy. And don’t forget softness in the housing market and weak demand for commercial loans, among other trends that are detrimental to banks.
A lack of action in the lucrative fixed-income, currencies and commodities (FICC) markets caused trading revenue to slow to a trickle until recently. And, although mergers and acquisitions and initial public offerings have a been a bright spot, contributions from those investment banking activities couldn’t offset a lack of spark everywhere else.
As a result, JPMorgan Chase missed analysts’ earnings and revenue targets more often than not over the past couple of years. Indeed, with its most recent results, JPM beat Street forecasts for only the second time in seven quarters.
Suffice it to say that JPM hasn’t looked this good in a couple of years, at least. However, as much as JPM stock remains a key holding for any long-term portfolio, the stock is starting to hit Wall Street price targets, and once that happens, downgrades on valuation usually follow.
That’s really a short-term, tactical worry, however, and doesn’t change the fact that JPM looks much improved on a fundamental basis.
Although a patient investor could probably find a better entry point in JPM stock, that’s no reason to avoid shares altogether.
The bank’s fortunes haven’t looked this good in a long time, which bodes well for JPM stock.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
