J.P. Morgan Chase & Co. (NYSE:JPM) CEO Jamie Dimon made waves recently by calling out regulators as overzealous, and even calling the current “assault” on bank stocks un-American.
It was a good show, but still couldn’t distract Wall Street from the bigger news around JPM stock — namely, disappointing earnings that drove the stock down 4% in a single session and helped fuel a roughly 10% decline in the financial giant since New Year’s Day.
The topic of banking oversight is a divisive one, but more important to investors is the outlook for big bank stocks like JPM, Wells Fargo & Co. (NYSE:WFC) and Bank of America Corp (NYSE:BAC).
And I, for one, am viewing this recent rollback in JPM stock as a buying opportunity.
Because say what you want about the politics of bailouts and regulation, it’s hard to argue that Dimon and J.P. Morgan are not committed to profits and protecting shareholder value.
Legal Fees Aren’t Permanent: J.P. Morgan has had its problems lately, most notably a drop in profit driven in part by a jump in legal fees. Dimon called this out as an expense that can and should decline going forward, insisting that the bank will stop “stepping in dog shit” going forward.
Cyclical Recovery: Major banks like J.P. Morgan Chase are cyclical investments, and the U.S. economy continues to chug higher with a steadily improving job market. JPM stock has a tight link to commercial and consumer lending, which should continue to recover in the long term regardless of short-term volatility in earnings.
Wall Street Still Bullish: But don’t take my word for it: Consider a recent report from Baird analysts on the sector that identifies J.P. Morgan as a top buy, recommending “aggressive buying” of the stock in the mid-$50s, with a target of $67, about 16% upside from here.
Dividend Income: JPM stock offers a reliable and growing dividend, currently yielding about 2.9%. Distributions are up eightfold to 40 cents quarterly from just 5 cents quarterly in 2010, but even now they are just about 28% of earnings — meaning plenty of room for future increases.
Unrivaled Scale: While all major financial stocks have scale, JPMorgan is in a class by itself even among megabanks. JPM stock boasts more than $2 trillion in assets, or 13.1% of the banking industry’s total. The No. 2, BofA, lags considerably at $1.5 trillion or roughly 9.9% of the industry’s total. This bank clearly isn’t going anywhere.
If you’re looking to buy a business at a bargain price, JPM stock provides a good opportunity now on a recent pullback.
There assuredly will be volatility ahead, especially after poor earnings. But investors should remember that this financial stock is at the top of its class and will continue to do right by shareholders no matter what the market or regulators throw its way.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
