Is JPMorgan Back at a Bargain?

In 2019, JPMorgan was the third-best-performing stock, ending the year at a record high.

Going into 2020, the Street pondered if JPMorgan Chase stock was too pricey. Now investors may be able to snatch up shares at a marked down price.

Banks had a rough go of it in 2020, but are beginning to regain lost ground. As of the close on Tuesday, JPMorgan shares [$JPM] were down 10.3%YTD, making it the seventh-worst performing stock on the Dow, which was up as a whole 6.3%. The stock had puked as much as 45% as the pandy ensued.

Despite the fact that the bank’s stock has trailed behind the broader market this year, it has bested other lenders, thanks to the bank’s rather diverse revenue streams and storied “fortress balance sheet.” 

A new accounting law, termed Current Expected Credit Losses, was implemented at the start of 2020, bullying banks into booking expected loan losses up front, weakening their profits. Then the virus swept the U.S. and the shutdowns to slow the spread prompted fears of a wave of bad loans.

The Fed looked to stifle the economic damage by cutting short-term interest rates to near zero, in March. That was an additional gut-punch to the industry because it narrowed the spread between what banks could earn in interest on loans and what they paid out to depositors.

The Fed also limited the amount of dividends the banks could pay and temporarily restricted share buybacks. That forced the banks to hoard cash, ensuring their health but giving investors little reason to camp out in the sector.

$JPM YTD

Now, although the country is still healing from the pandy, investors have reasons to be bullish about JPMorgan. The economy has yet to return to pre-virus levels of activity, but many of the worst-case scenarios have been averted.

Analysts recently noted that JPMorgan would be one of the banks in the best position to benefit from improved credit conditions. A successful rollout of various vaccines would substantially help the economy, driving demand for loans and making it more likely that borrowers could stomach the debt.

JPMorgan was one of the first lenders to announce plans to repurchase shares shortly after the Fed removed constraints in December. It plans to buy back as much as $30

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s