Major banks took it to the shorts during Wednesday's market plunge. Most of the biggest banks were off 5% to 8% during the pullback. The prospect of increased regulation during the second term of President Obama, the reversal of the pro-Romney trade, and the specter of Elizabeth Warren having influence in the Senate with regard to the financial services area all rocked the sector.
One bank I own, JPMorgan (JPM), was caught in the downdraft, but the overreaction looks like a good opportunity to add to its cheap shares. The company is regaining its footing after the recent "London Whale" trade and picking up some positive catalysts.
Here are key recent catalysts for JPMorgan:
- The company got the OK from the Fed today to restart stock repurchases.
- It also looks as if the bank is ready to settle with the SEC regarding improper dealings from Bear Stearns and putting this albatross behind it.
- Consensus earnings estimates for both FY 2012 and FY 2013 have risen significantly over the last three months.
- The company is the second-largest private mortgage originator in the country and should continue to benefit from the improving housing market.
Here are four additional reasons JPMorgan is undervalued at $41 a share:
- The company has a self-described "fortress" balance sheet and yields 2.8%. I would look for the company to provide consistent dividends over the next few years as it continues to work through litigation and is boosted by an improving housing market.
- The stock is cheap at less than eight times forward earnings, a discount to its five-year average (11.8). It is also priced at 81% of book value.
- Insiders have been net buyers of the stock over the past six months. Jamie Dimon made a big buy in July.
- JPMorgan is selling near the bottom of its five-year valuation range based on P/CF, P/E, and P/CF. The company has also beat earnings estimates 11 of the last 12 quarters.