Monday April 02, 2012
by Mike Cintolo, editor Cabot Top Ten Trader
Our technical screens generally don't uncover many mega-cap companies like JPMorgan Chase & Co. (JPM), with sales of $111 billion and a market cap of $172 billion.
But the the stock is one of the strongest in the market now because investor perception of the ﬁnancial group has taken a sharp turn for the better. There are two main reasons for that.
First, JP Morgan and other big players in the ﬁnancial ﬁeld passed the Fed’s recent “stress tests,” lowering any remaining fear that another 2008 might crop up again should the world take a turn for the worse.
Second, passing that test allowed these ﬁrms to embark on signiﬁcant, shareholder-friendly moves with their cash.
In JP Morgan’s case, it hiked its dividend by 20% (now 30 cents per quarter, with an annual yield of 2.7%) and announced a $15 billion share repurchase authorization, up to $12 billion of which could take place in 2012.
CEO Jamie Dimon said that the company “expects to generate signiﬁ cant capital and deploy that capital to the beneﬁt of our shareholders.”
Combine that move with slow-but-steady growth during the next couple of years (about 10% each year) and a reasonable valuation (10 times earnings), and you get a company where institutional investors are comfortable putting money to work.
JPM has always been one of the tallest midgets in the ﬁnancial ﬁeld—though it rides the sector’s trends (mostly down in recent years), it’s held up far better than most of its peers.
So it only makes sense that, now that the clouds are parting, the stock is helping to lead the way higher. Shares have moved up four weeks in a row, including a huge-volume ramp after the dividend/share repurchase announcement two weeks ago.
Of course, JPM isn’t going to double from here, but we think the downside is limited as well. If you’re game, buying on a dip of a point or more should work out; our suggested buy range is the $43.5 to $45 area.
Learn more about this financial newsletter at Mike Cintolo's Cabot Top Ten Trader.