JPMorgan Chase & Co. (NYSE:JPM) is a financial holding company and is engaged in investment banking, financial services for consumers and small business, commercial banking, financial transaction processing, asset management and private equity. On October 11, 2013, the company reported third-quarter earnings of $1.42 per share, which beat the consensus of analysts' estimates by $0.13. In the past year the company's stock is up 26.77% excluding dividends (up 28.84% including dividends) and is beating the S&P 500, which has gained 25.16% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying more shares of the company right now for the financial sector of my dividend portfolio.
The company currently trades at a trailing 12-month P/E ratio of 13.11, which is inexpensively priced, but I mainly like to purchase a stock based on where the company is going in the future, as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 9.75 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $6 per share and I'd consider the stock inexpensive until about $90. The 1-year PEG ratio (0.36), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is inexpensively priced based on a 1-year EPS growth rate of 35.99%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 35.99%.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 2.6% with a payout ratio of 34% of trailing 12-month earnings while sporting return on assets, equity and investment values of 1%, 11.8% and 6.7%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 2.6% yield of this company is good enough for me to take shelter in for the time being.
Looking first at the relative strength index chart [RSI] at the top, I see the stock dropping from overbought territory with a value of 61.74 and downward trajectory. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is just about to cross below the red line with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($58.49), I'm looking at $59.17 to act as resistance and the 20-day simple moving average (currently $57.58) to act as support for a risk/reward ratio which plays out to be -1.56% to 1.16%.
- The company has decided to leave the business of prepaid cards. The company is exiting the business based on the notion that it has become a headache to manage having just warned about 465,000 customers their personal data may have been hacked into.
- Nomura recently initiated coverage on JPMorgan. The coverage starts with a "neutral" rating and price target of $61 citing they like the earnings profile but that the capital shortfall will dampen near-term returns.
- Sandler O'Neill recently reiterated its "buy" rating on the company. The analyst states that the declining litigation risks are positive for the bank because it will allow investors to now focus on the fundamentals of the company.
There is nothing the banks will be able to do to fight against the government, the litigation issues I believe are already priced into each stock because everything is pretty much known already. So what we need to do is focus on the fundamentals at each company now. Fundamentally the company is inexpensively priced based on future earnings and on future growth potential. Financially the dividend is not as high as it used to be. Technically I see the stock moving downward from here. I'm going to avoid pulling the trigger here and wait to see how they report. The next earnings report is scheduled for Jan 14th, before the market opens, and I would not be surprised to see the stock test the 20-day simple moving average at that point.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: I am long JPM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.