Is JPMorgan Chase a Good Portfolio Play?

With shares of JPMorgan Chase & Co. (NYSE:JPM) trading around $57, is JPM 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.

JPMorgan Chase agreed to pay bond insurer Syncora Guarantee Inc. $400 million to end lawsuits over mortgage-backed securities. The insurer had claimed JPMorgan and firms the bank had acquired misrepresented the quality of loans included in securitizations. Syncora, which announced a deal on February 24 without disclosing terms, said in a February 28 annual regulatory report on its website that it’s getting $400 million in cash from the New York-based lender. JPMorgan Chief Executive Office Jamie Dimon, 57, has said his preference is to settle disputes tied to behavior from the financial crisis. He agreed to more than $23 billion in legal and regulatory settlements last year. Brian Marchiony, a spokesperson for the bank, declined to comment on the deal. Reuters reported the settlement figure earlier today. The settlement couldn’t immediately be confirmed in court records.

T = Technicals on the Stock Chart Are Strong

JPMorgan Chase stock has done relatively well in the past couple of years. The stock is currently surging higher and looks set to continue. 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 between its rising key averages which signal neutral 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

21.81%

43%

40%

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

April Options

Average

Average

May Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral 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 Mixed 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 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

-6.47%

-112.14%

32.23%

33.61%

Revenue Growth (Y-O-Y)

-7.02%

-7.67%

13.67%

-3.57%

Earnings Reaction

0.06%

-0.01%

-0.30%

-0.60%

JPMorgan Chase has seen mixed earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about 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

-2.53%

6.39%

-6.52%

2.73%

1.01%

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

Conclusion

JPMorgan Chase is a bellwether in the banking space that forms an essential part of the United States financial system. The company agreed to pay bond insurer Syncora Guarantee Inc. $400 million to end lawsuits over mortgage-backed securities. The stock has done relatively well in the past couple of years and is currently surging higher. Over the last four quarters, earnings have been mixed while revenues have been decreasing which has produced conflicting feelings among investors. Relative to its peers and sector, JPMorgan Chase has been an average year-to-date performer. WAIT AND SEE what JPMorgan Chase does this quarter.

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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