Many times you must have read that you should buy quality equities when those equities are hit by one-off events. This is easier said than done. When the events arrive, the world always seems to be on the verge of ending, taking your portfolio with it. And in those times, buying is simply too hard.
Yet, here we are, staring right into such a situation. JPMorgan (NYSE:JPM)'s CIO division was badly managed. It went and instead of hedging the bank's exposure, bet heavily and lost. It lost billions of dollars. $2 billion, $3 billion. Perhaps $5 billion. But yet, it lost just this time, and the activities that led to the loss have certainly been shut down.
So in practice you know that this is one of those one-off events, and still JPM lost 30% of its value due to that event - some $52 billion in market capitalization. And by taking such a hit, JPMorgan turned from a financial stock you wouldn't know whether to buy or sell, into a bargain.
After taking this hit, JPMorgan now trades at a dividend yield of 3.7%. It also trades at a forward 2012 P/E of 7.3, and that's after taking the hit from the reported trading losses. To have a feel for the relative value, Bank of America (NYSE:BAC), a lower quality bank, trades for 12.2 times its forward 2012 consensus estimates. Citigroup (NYSE:C), another lower quality bank, trades at a forward 2012 P/E of 6.3 times - but with virtually no yield.
From a one-time adversity, comes opportunity. Even if now is not the easiest of times to recognize this opportunity, and even if in this instance JPM seems to have been mismanaged, it seems clear that the huge punishment JPMorgan was dealt has created an investment opportunity.
As such, I'm going on record as saying that JPMorgan is an interesting long candidate at today's prices ($32.19), as well as a nice position to add to any dividend income portfolio. In other words, "this too shall pass".