HedgeFundLIVE.com – With JP Morgan trading in the mid-$40s which is about 10% off of its near-term highs, I thought I would put together a list of a few reasons why I like the name as a long.
1) Based on street estimates, the stock has earnings power in the $6.00-$6.50 range if not higher in the next couple of years. I think that these are fair numbers based on pre-provision earnings run-rating this year at $40bln+ with weak loan demand and fairly low interest rates. Combining this with ever-smaller loan-loss provisions and markedly less competition equates to some pretty significant future earnings power. Based on these estimates, the stock at current levels is trading at just over 7x forward earnings. Apply a more –reasonable 12x earnings estimate to these numbers and you have a $75 stock at the mid-point of the range. Heck, slap a 10x PE and you get to $62.50 at the mid-point. Not a bad deal for a stock trading at around $45 per share.
2) Great management. Jamie Dimon has proven himself a savvy and appropriately risk-averse CEO who is well connected and surrounds himself with capable underlings. He was trained by one of the all-time greats in financial services, Sandy Weill. He was able to use this training to successfully guide JP Morgan through the worst financial crisis in a lifetime which gives me confidence that he will be able to do so again.
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