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Summary

  • The dividend yield is low with respect to the yield on the 10-year treasury.
  • The stock has bearish technicals.
  • Future earnings growth potential is a bit small.

The last time I wrote about JPMorgan Chase & Co. (NYSE:JPM), I stated:

"I'm going to avoid pulling the trigger here and wait to see how they report." Since the time the article was published, the stock has popped 3.73% versus the 2.33% gain the S&P 500 (NYSEARCA:SPY) posted. JP Morgan 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 January 14, 2014, the company reported fourth-quarter earnings of $1.40 per share, which beat the consensus of analysts' estimates by $0.16. In the past year, the company's stock is up 27.83%, excluding dividends (up 30.55% including dividends), and is beating the S&P 500, which has gained 20.16% 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.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 13.88, 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 9.57 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $6.34 per share and I'd consider the stock inexpensive until about $95. The 1-year PEG ratio (1.77), 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 fairly priced based on a 1-year EPS growth rate of 7.84%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

13Jan14

58.49

13.11

9.75

6.00

90

0.36

35.99

01Apr14

60.67

13.88

9.57

6.34

95

1.77

7.84

Financials

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 2.64% with a payout ratio of 37% of trailing 12-month earnings while sporting return on assets, equity and investment values of 0.9%, 11.5% and 7.1%, 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 2.64% yield of this company is good enough for me to take shelter in for the time being. Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

13Jan14

2.60

34

1.0

11.8

6.7

01Apr14

2.64

37

0.9

11.5

7.1

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock near overbought territory with a current value of 63.05. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($60.29), I'm looking at $62.50 to act as resistance and $58.92 to act as support for a risk/reward ratio which plays out to be -2.27% to 3.67%.

Recent News

  1. The company has been accused of illegally blocking a money transfer from Russia. The money transfer was from Russia's embassy in Kazakhstan to insurance agency Sogaz, a subsidiary of Bank Rossiya which is facing sanctions from the U.S. JPMorgan made $55.6 million in investment banking fees from Russia last year and I believe that may dwindle this year as a repercussion of the sanctions.
  2. Hong Kong authorities have searched the office of outgoing JPMorgan Fang Fang. The former head of JPMorgan's China investment banking operations is a key figure for the probe into the bank's alleged hiring of children from prominent Asian families.
  3. The company declared a $0.40 quarterly dividend. Immediately after receiving their Comprehensive Capital Analysis and Review results the company increased its dividend by 5.3% with an ex-date of 30Jun14 and pay date of 31July14.

Conclusion

JPMorgan lost to KLA-Tencor Corporation (KLAC) in my Dividend Portfolio Super Bowl two months ago and in that time span, KLA-Tencor is up 13.48% while JPMorgan is up 10.13%. Fundamentally, the stock is inexpensive on next year's earnings and fairly valued on the earnings growth potential. Financially, the dividend yield is decent and well supported by earnings. Technically, it appears the stock has some downward momentum going right now. Due to the low dividend yield, bearish technicals, and high valuation based on earnings growth potential I will not be pulling the trigger on this name right now.

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, KLAC, SPY. 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.