"I love the smell of napalm in the morning." - Lieutenant Colonel Bill Kilgore (Apocalypse Now)
As predicted, the March jobs report came in weaker than the consensus estimates, triggering the worst sell-off since February in early trading Friday. For investors who were prudent enough to keep cash in their portfolio, it is time to start to nibble. I still expect that we are going to get a 5% to 8% pull back before all is said and done. However, it is hard to nail this precisely, so it is more logical to start putting a little cash to work on a large down day like today. I believe it is time to add JPMorgan (JPM) again in my portfolio. It has already fallen some 7% from its recent highs due to its latest turn in the congressional spotlight. I have had good luck in buying this bank stock every time it has a decent swoon. Most recently, I picked it up last summer when the overall market sold off and the stock was called from me earlier this year (I initiated a covered call position after the stock had a nice rebound). The bank is cheap and despite continuing fallout from the "Whale" trade has had some positive catalysts recently.
Recent Positives for JPM:
- Evercore Partners just upgraded the shares to "Overweight" from "Equal Weight." The firm slapped a $55 price target on the stock calling it the cheapest of the TBTF (Too Big To Fail) banks.
- The bank recently won a significant legal victory, winning dismissal of 60 of 65 claims filed by Dexia accusing the bank of misleading the Belgian bank into buying more than $1.8B in troubled MBS (Mortgage Bank Securities). Hopefully this bodes well for dismissal of similar suits.
- It also recently announced that starting in the second quarter, its quarterly dividend will rise to 38 cents a share from 30 cents a share previously.
- Consensus earnings estimates for both FY2013 and FY2014 have ticked up over the last two months.
4 reasons JPM is a good value play at $47 a share:
- The stock now yields 3.2% and sells for just 8x projected 2014 earnings.
- The bank is selling for less than book value again after its recent decline (93%).
- The company has easily beat earnings estimates each of the past three quarters (and 11 of the last 12). Consensus earnings estimates for the next two quarters have also moved up nicely over the past three months.
- JPM has an A rated balance sheet and a median price target of $54 a share by the 30 analysts that cover the company. Credit Suisse has an "Outperform" on the shares.