JPMorgan Chase & Co. (JPM) is one of the world�s biggest and best financial stocks. Along with rivals Bank of America (BAC), Citigroup (C) and Goldman Sachs (GS), the fate of JPMorgan is intimately tied to the fate of not only the financial sector, but the entire global economy.� Over the past two weeks we�ve seen all of these companies report earnings, and after digesting the news the question now has become�what�s in store for these stocks in the second half of this tumultuous 2010?� In the case of JPMorgan, a solidly bullish case can be made for the stock�s future.� Here are five reasons why JPM is headed higher.
Strong JP Morgan Earnings.� On July 15, JPMorgan reported a 77% surge in second-quarter net income.� The $4.8 billion in Q2 came largely as a result of a slowdown in losses from non-performing loans.� The strong quarterly numbers signaled to Wall Street that perhaps the worst is over on the loan-loss front for the major banks. For the quarter, JPMorgan earned 73 cents a share excluding various items, up 167% from the same quarter a year ago and easily besting consensus estimates for a profit of 67 cents per share.
JPM Stock and Its Incredible Management.� JPMorgan has always been considered one of the most well run companies, not just in the banking industry but in any industry.� Throughout the financial crisis and recession, the bank managed to avoid quarterly losses.� That stellar management can be seen last quarter, as the firm�s $3.4 billion provision against earnings for credit losses was down sharply from the $7 billion in Q1, and $9.7 billion a year earlier.� The actual credit loss incurred in Q2 was $5.7 billion, much better than the $7.9 billion in Q1.
Morgan�s �Dimon Factor.�� One reason why JPMorgan is so well managed has to do with its high-profile CEO Jamie Dimon.� Dimon is an icon on Wall Street, preferring a cautious �underpromise and overdeliver� approach to earnings guidance.� To give you a sense of Dimon�s tough personality, a recent article in the Financial Times titled �Dimon turns Churchillian� quoted the CEO as he aggressively addressed a fall by almost a half in European investment bank revenue in the past quarter.� Dimon said he would fight the competition �inch-by-inch, foot-by-foot, yard-by-yard, mile-by-mile. That means more bankers, better bankers, more products, more coverage of clients.�� Now that�s the kind of CEO that inspires investor confidence.
Limited Impact of Financial Reporms. The fear over how far Congresses� financial reform legislation, or FinReg, will reach into bank operations has put a damper on the entire banking sector over the past several months.� Yet according to Fox Business Network reporter Charlie Gasparino, banks have already found the loopholes in the legislation they need to help ameliorate most of FinReg�s damage. According to Gasparino, �A consensus is forming among Wall Street chief executives that the costs of financial reform will be significantly less than originally predicted.�� Gasparino also cited an anonymous source who says that Dimon predicts �he can reduce the earnings hit to a little less than 10%.�� Make no mistake, banks will always find ways to circumnavigate financial regulations, and the Gasparino report just confirms what most observers suspect�new FinRegs will have a limited impact on banks.
Buy the JPM Stock Breakout.� There�s no denying the big slide in JPM shares since April. The stock has fought back off its June lows, recently breaking above its short-term, 50-day moving average.� JPM still trades well below its long-term, 200-day moving average, and that means it�s going to take some solid buying to get the stock fully back above technical resistance.� If, however, the shares can make it over this hump, it could mean the stock will be off to the races.
As of this writing, Jim Woods did not own a position in any of the stocks named here.
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