Is JPMorgan Chase a Worthwhile Investment?

With shares of JPMorgan Chase (NYSE:JPM) trading around $54, is JPMorgan Chase an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

JPMorgan Chase is a financial holding company that provides various financial services worldwide. The company is engaged in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing, asset management, and private equity. Financial services companies like JPMorgan Chase are essential for well-functioning economies around the world.

As companies continue to operate and economies expand, leaders like JPMorgan Chase will provide valuable products and services that help financial transactions run as smoothly as possible. As one of the better big banks, JPMorgan Chase will lead the financial sector for many years.

Recently, JPMorgan Chase reported earnings that exceeded expectations. The bank is also facing scrutiny from the Federal Bureau of Investigation and the Securities and Exchange Commission over the London Whale trading scandal that occurred last year. Two of the bank’s employees are facing criminal charges related to covering up $6 billion in trading losses. The New York Times reports that the SEC could demand JPMorgan Chase admit wrongdoing in the matter, an aggressive move for the agency, which typically allows defendants to neither admit nor deny wrongdoing.

T = Technicals on the Stock Chart are Strong

JPMorgan Chase stock has seen a consistent rise over the last several years. The stock has fully recovered from the Financial Crisis and is now trading at prices not seen for over a decade. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, JPMorgan Chase is trading near its rising key averages which signal neutral to bullish price action in the near-term.

JPM

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of JPMorgan Chase options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

JPMorgan Chase Options

21.06%

46%

43%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on JPMorgan Chase’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for JPMorgan Chase look like and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

32.23%

33.61%

54.89%

37.25%

Revenue Growth (Y-O-Y)

13.67%

-3.57%

10.16%

5.82%

Earnings Reaction

-0.30%

-0.60%

1.01%

-1.14%

JPMorgan Chase has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have expected a little more from JPMorgan Chase’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has JPMorgan Chase stock done relative to its peers, Bank of America (NYSE:BAC), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), and sector?

JPMorgan Chase

Bank of America

Citigroup

Wells Fargo

Sector

Year-to-Date Return

23.15%

23.90%

28.26%

26.62%

24.92%

JPMorgan Chase has been a relative average performer, year-to-date.

Conclusion

JPMorgan Chase is a bellwether in the banking and financial space that forms an essential part of the United States financial system. The company is being scrutinized by officials because of the London Whale incident. The stock has been steadily rising and is now trading at prices not seen for over a decade. Over the last four quarters, earnings and revenue figures have been rising, however, investors have expected a little more from the company. Relative to its peers and sector, JPMorgan Chase has been an average relative performer. Look for JPMorgan Chase to OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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