JPMorgan Consistently Fares Better Than Its Peers

Often we attempt to avoid quick fluctuations back and forth in our ratings and opinions on securities. However, in the case of JPMorgan Chase (JPM), we really don’t have a choice. This is a great example of prices whipsawing around value and neither winning in the end. 

If you look at our pricing chart…

we have been positive on the firm for a while, then as fundamentals began to erode, we went into a gray colored “fairly valued” stance on and off from February 2008 until October 2008. Then, two weeks ago, Ockham Research jumped to an “over valued” rating on JPM for exactly one week.  As you can see from the chart, we made quite a prescient call at that point.  Then this last Monday, we upgraded JPM all the way to “greatly undervalued“, which looks like it too may be a good move as we came to the week’s end. Not because we see a drastic improvement in price or fundamentals, but because the oversold nature of the market makes some securities more attractive than others at this point.

This is a great example of what we don’t advise people to do. Again, let me be clear, there are fundamental reasons why we like JPMorgan over the last year and why we have bounced between fairly valued and under valued. However, those fundamental reasons can be all but destroyed when irrational market price fluctuations (a.k.a. the last several weeks), cause a severe jump back and forth.

This is not the way to invest in the long haul. However, with the market reaching these levels, a prudent investor can now begin to select their targets and pull the trigger. Again, we can’t call a bottom (if you want that, turn on CNBC and wait for some idiot to come on).

We do believe that JPMorgan has consistently fared better in this market than many of its peers. As you can see from this quick Peer analysis chart…

Furthermore, at a difference of 25% below the average historical Price to Cash Earnings ratio, our view would be quite positive even without the oversold conditions we are experiencing in the broader market.  While we view better Cash Earnings metrics as very important, if the market is slow to identify this value, or if Cash Earnings were to fall from these levels, we would become more neutral in our stance. And given the unfolding nature of bad news lately, we don’t think that is impossible.

Disclosure: Ockham Research LLC does not own any securities nor does it stand to benefit monetarily by any movement made in the stock price of any company mentioned herein.

Comments

[PastTense:]

So, does anyone really have any idea of how much JPMorgan Chase has in the way of junk assets?

2008 Oct 12 02:43 PM

[SugarDaddy:]

To myself JPM is the single serious barometer of whether we as a nation could really fall into a 1929 style depression. Their derivative exposure exceeds any investment house in the US by a large margin, in the Trillions. Guess the central banks/fed reserve have given the media instructions on what "not" to say about JPM.

2008 Oct 12 08:52 PM

[Ryan Teeples:]

One of my fellow analysts actually wrote about this last week. He says now is a time to buy banking stocks. Here's the link with the chart:

www.learningmarkets.co...

2008 Oct 14 12:57 AM