But that is not why it has been in the news recently. Due to misdeeds during The Great Recession, JP Morgan has been fined billions of dollars (the most of any bank so far). Those penalties resulted in the company posting its first loss under the current management. It is likely there are more on the way. When these are announced in the press and the stock price falls in response, investors should look upon that as an opportunity to buy for the long term.
A major asset of JP Morgan is its Chairman and Chief Executive Office, Jamie Dimon. He is regarded by many as the best banker in the industry. His reputation has been tarnished due to the scandals. But, over the long term, that will likely prove to be a passing matter.
The Fines are a Blip on the Radar
JP Morgan stock is up more than 30% for 2013 – which really shows how little Wall Street could care about JP Morgan's legal issues.
Much of that has to do with the bull market surge, of course. But the entire financial sector has rallied strongly this year. Banks are perceived as being much stronger after having survived The Great Recession. Having legendary investor Warren Buffett own shares of Bank of America (NYSE: BAC) and United States (NYSE: USB) is certainly a positive. Even more bullish is that a bank, Wells Fargo (NYSE: WFO), is the largest holding of Berkshire Hathaway (NYSE: BRK-A), Buffett’s investment firm.
Even with its fines, the price-to-earnings ratio for JP Morgan is less than 13. It is projected to fall to under ten by the analyst community. That is a result of JP Morgan being expected to increase its earnings per share by more than 35% next year.
The legal issues have still not affected its profitability. JP Morgan has a profit margin of 43.50%. For Bank of America, it is just 13.10%, by contrast.
The Future of JP Morgan
What the shareholders of JP Morgan can also look forward to is a growing dividend.
The average dividend for a member of the Standard & Poor’s 500 Index is around 1.9%. For JP Morgan, it is 2.69%. The company has a history of increasing the dividend to reward shareholders.
While it is impossible to time the market, with a beta of 1.69 JP Morgan is about 70% more volatile than the rest of stock market. The share price moves up and down as the banking sector is volatile. Any perceived action by the Federal Reserve or others will have speculators jumping in and out of bank stocks. But for long term investors, the fluctuating share price of JP Morgan presents unique buying opportunities.
With stocks that pay dividends, investors can set a target yield as the time to buy.
Where JP Morgan is Heading
If an investor were to set the buying price for a stock being when its dividend was 3%, that would result in owning shares of a company with a dividend 50% higher than the average for a member of the Standard & Poor’s 500 Index. When JP Morgan was nearing its year low of $41.64, the dividend yield was much higher than 3%.
JP Morgan is now trading for around $55 a year.
The mean analyst target price for the next year of market action is $63.05. Combined with its above average dividend yield, that makes for a total return in the double digits. When it shakes off all of the fines and penalties, which it will, the rewards for long term shareholders will be even greater.