If you’re a dyed-in-the-wool contrarian and value investor, JPMorgan Chase (NYSE:JPM) stock deserves your attention. The company isn’t so over-leveraged on Treasury bonds that it’s likely to fail. Besides, customers are reportedly fleeing less reputable banks and moving their funds to financial giants like JPMorgan Chase.
Not everyone wants to hold bank stocks now, and that’s understandable. The collapse of SVB Financial (NASDAQ:SIVB) subsidiary Silicon Valley Bank and chatter about bank runs have scared some investors out of the banking sector entirely.
Yet, the wholesale selloff of financial stocks may have created opportunities for bold stock traders. As banking customers seek safe havens, an investment in one famous bank might (ironically enough) be one of the least risky ways to allocate one’s capital now.
| JPM | JPMorgan Chase | $129.32 |
JPMorgan Chase and Treasury Bond Exposure
It’s fine for a bank to invest customers’ deposits in government bonds, but some banks overdid it and now they’re having problems. Under the assumption that Treasury yields would stay low like they did in 2020, Silicon Valley Bank and some other regional banks over-leveraged themselves on seemingly “risk-free” government bonds.
Fortunately, for JPM stockholders, JPMorgan Chase is a much bigger company than regional banks like Silicon Valley Bank. JPMorgan Chase can afford to absorb capital losses stemming from lower bond prices in 2023.
Also, calculations made by Barron’s show that JPMorgan Chase’s capital ratio adjusted for bond losses, at 11.5%, isn’t excessive compared to the company’s big-bank peers. Thus, JPMorgan Chase isn’t overexposed to government bonds to the point of being in financial trouble.
JPM Stock Is a Good Value
As JPMorgan Chase reportedly scoops up most of the customers leaving Silicon Valley Bank, investors might observe consolidation in the U.S. banking sector. There may be fewer banks available to customers, but those banks would be bigger and more trustworthy.
Hence, we’re already observing signs that JPM stock could be a safe-haven asset, relatively speaking. Another positive sign is that shares of JPMorgan Chase are a good value. The company’s trailing 12-month price-to-earnings (P/E) ratio has come down to just 10.5x.
If a price-to-book (P/B) ratio of 2x or less typically indicates a decent value, then JPMorgan Chase is almost within the buy zone at 2.05x. And by the way, the company pays a forward annual dividend yield of 3.2%, which ought to entice income-focused investors.
What You Can Do Now
Sure, it’s alarming to see headlines about the current banking crisis. It’s fine if you don’t want to delve into financial stocks now. Yet, some investors are prepared to buy when others are selling.
If this describes you, then feel free to conduct your due diligence on JPMorgan Chase. It’s a gigantic company with deep capital reserves. JPMorgan Chase could benefit from consolidation in the banking sector. Therefore, you might choose to take advantage of a notable value-and-dividend combo with a share position in JPM stock.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
