“Then, there is JP Morgan, a stock that I own for my charitable trust Actionalertplus.com. Single-most important stock in the Dow because we need a bank that’s strong enough to be able to buy toxic assets and take advantage of the wreckage to sell failed banks. I believe JP Morgan could be the key to the next 2000 points in the direction and you know which way that I’m thinking. And today, it’s telling that you government is doing what I’ve said it should do over and over… Well, let's ring fence to the toxic assets and then freeze up all of the money that has been sitting on the sidelines at banks. Four times more than they need. If the government’s plans are as coordinated as they seem, then I believe JP Morgan could see many more points of upside and take the rest of the market with it.” Mad Money 3/23/2009
Well, perhaps Cramer was giddy from the market’s surge yesterday or maybe he really believes that this is what the market has been craving. Either way he is putting his support behind JP Morgan (NYSE:JPM) to lead the financials, and thus the market, even higher. The stock has nearly doubled since reaching multi-year lows on 3/6/09. JP Morgan has been able to keep their head above water (at least comparatively) for most of the recession up until this point and they were one of the banks to offer guidance of first quarter profit last week.
We have a Undervalued valuation on JPM shares as their price-to-cash flow remains deeply discounted to historical norms. If the Treasury’s efforts have the effect that Cramer thinks they will, then we would not be surprised to see JPM selling at a more historically normal valuation, which would put it in the low $40’s. Financials still give us some nerves but the market certainly seems to be responding to the latest plan out of the Treasury, and we know it is not wise to fight the tape.