Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Is This the Time to Buy JPMorgan?

Wednesday, June 20th, 2012
By for Profit Confidential

Buy JPMorganThe recent testimony by Jamie Dimon, CEO of JPMorgan Chase & Co. (NYSE/JPM), in front of the Senate’s panel proves two things: 1) Dimon is quite cool under pressure; and 2) lawmakers know very little about the financial market sector and bank stocks. In response to the reported $2.0-billion loss at one of JPMorgan’s divisions based in London, lawmakers have decided to put the hammer down on bank stocks to try to reduce risk and volatility. Conversely, bank stocks want to keep as little regulation as possible to enable them to make profits. With all of this uncertainty, many investors have jumped ship, and it has made me question if an opportunity exists to get into bank stocks and the financial market sector while others are leaving it.

Dimon reiterated that these losses were hedged trades and not proprietary trades. The difficulty is differentiating one from the other with all bank stocks. To understand this better, think of bank stocks like a store selling clothing. Part of the requirements for bank stocks is to hold inventory for clients to make markets and facilitate trades. To not allow any flexibility in the system would be similar to having a clothing store with no clothes, while having any clothes might be viewed as proprietary speculation on how many shirts would actually sell. Of course, this is ridiculous, as is having handcuffs on bank stocks.

However, things do need to change in the financial market sector, as we’ve seen by the crisis in 2008. Obviously, the existing financial market sector is not perfect. Ultimately, the incentive and punishment system must be in place so that one can’t simply gamble with other people’s money and take the profits, but taxpayers take the losses. Imposing a system of clawbacks, which Dimon did say he would favor, stretching payments out over an extended period of time and having mandatory shares in the firm are important steps to achieving a better system.

The question is whether or not JPMorgan is a good buy right now. I would say not quite yet, but it will be. This trading loss has already grown from the initial $1.0-billion statement to perhaps $2.0 billion to $4.0 billion when it’s wound up this fall, as I initially thought it would when I wrote my article, What You Don’t Know About Banks Will Hurt You.

I also see further financial troubles in the fall with more European turmoil. JPMorgan is currently trading at a discount to book value of 25%. Historically, buying bank stocks when they’re trading at a discount to book value has been a sound investment decision. When everybody loves bank stocks and they trade at full value, it’s very difficult to make money at that point. But when everybody hates bank stocks and they trade at a discount, then they’re on sale and worth a look.

J.P. Morgan Chase Chart

  • Still worried about the economy? Become an elite charter member of George's DAILY PROFITS and you could...


    George gave us the $2.8-billion IT infrastructure provider, up 4,745.20%; the $1.8-billion advertising agency, up 1,295.44%; and the $762-million business software company, up 1,213.19%.

    Only charter members can follow George daily.

    Learn how here!

Chart courtesy of www.StockCharts.com

Note the recent positive divergence between the price of JPMorgan and the Relative Strength Index (RSI). The stock still has quite a lot of resistance overhead, but it appears the 61.8% level is giving the stock support. One can also view the recent bottom as an inverse head-and-shoulders formation with the current price breaking above the neckline.

This is also a bank that will probably make between $20.0 billion and $24.0 billion this year in net profit with revenues approaching $100 billion. The loss of a couple billion dollars is not significant over the next 10 years. What is significant is if there are any unknown liabilities we are not aware of, especially related to Europe. This we must see once Spain and Italy go through their difficulties over the next six months. I would also want to see this bad trade in London closed and the final loss tallied. However, over the long term, investors interested in the financial market sector would do well to buy strong, stable bank stocks on dips, as long as the discount is not due to structural problems that the firm cannot overcome, such as was the case with Lehman Brothers.

VN:F [1.9.22_1171]
Rating: 10.0/10 (2 votes cast)
VN:F [1.9.22_1171]
Rating: +1 (from 1 vote)
Is This the Time to Buy JPMorgan?, 10.0 out of 10 based on 2 ratings

This is an entirely free service. No credit card required.

We hate spam as much as you do.
Check out our privacy policy.

Sasha Cekerevac - Investment Advisor, Fund AnalyzerSasha Cekerevac, BA Economics with Finance specialization, is a Senior Editor at Lombardi Financial. He worked for CIBC World Markets for several years before moving to a top hedge fund, with assets under management of over $1.0 billion. He has comprehensive knowledge of institutional money flow; how the big funds analyze and execute their trades in the market. With a thorough understanding of both fundamental and technical subjects, Sasha offers a roadmap into how the markets really function and what to look for as an investor. His newsletters provide an experienced perspective on what the big funds are planning and how you can profit from it. He is the editor of several of Lombardi’s popular financial newsletters, including Payload Stocks and Pump & Dump Alert. Add Sasha Cekerevac to your Google+ circles

The Great Crash of 2014

A stock market crash bigger than what happened in 2008 and early 2009 is headed our way.

In fact, we are predicting this crash will be even more devastating than the 1929 crash…

…the ramifications of which will hit the economy and Americans deeper than anything we’ve ever seen.

Our 27-year-old research firm feels so strongly about this, we’ve just produced a video to warn investors called, “The Great Crash of 2014.”

In case you are not familiar with our research work on the stock market:

In late 2001, in the aftermath of 9/11, we told our clients to buy small-cap stocks. They rose about 100% after we made that call.

We were one of the first major advisors to turn bullish on gold.

Throughout 2002, we urged our readers to buy gold stocks; many of which doubled and even tripled in price.

In November of 2007, we started begging our customers to get out of the stock market. Shortly afterwards, it was widely recognized that October 2007 was the top for stocks.

We correctly predicted the crash in the stock market of 2008 and early 2009.

And in March of 2009, we started telling our readers to jump into small caps. The Russell 2000 gained about 175% from when we made that call in 2009 to today.

Many investors will find our next prediction hard to believe until they see all the proof we have to back it up.

Even if you don’t own stocks, what’s about to happen will affect you!

I urge you to be among the first to get our next major prediction.
See it here now in this just-released alarming video.