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Chase

(CMB)

has given shareholders a lot to run from lately. But to listen to some people, that's about to change.

Too Pricey?
Chase off since Morgan buy

The stock has dropped 12% this year, as investors have fretted about problems ranging from its flagging tech-stock portfolio to its pricey buy of

J.P. Morgan

(JPM) - Get JPMorgan Chase & Co. Report

. Meanwhile, banking stocks at large have surged 14%, as measured by the

Philadelphia Stock Exchange/KBW Banks Index

.

But a number of analysts have stepped up to defend Chase stock lately, arguing that the selling has been overdone. Some say its accounting methods have cast a bad light on the performance of Chase's technology holdings, while others add that the past year's weakness in its venture capital unit is a drop in the bucket when compared with its impressive long-term performance. And despite what almost everyone agrees is a high price tag for J.P. Morgan, analysts emphasize the companies' complementary business lines and Chase's strength in integrating acquisitions as reasons the merger will pay off.

Upside

Chase trades at a "huge discount and has 50% plus of upside," says Sharada Krishnappa, banks analyst at

Parker/Hunter

in Pittsburgh.(She rates the stock a buy, and her firm hasn't done any underwriting for Chase.) Last week,

Deutsche Banc Alex. Brown

lifted its rating to buy from market perform, saying in a research note that its "valuation more than discounts the risks" of the Morgan acquisition and slower capital market revenue growth.

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The stock is now trading around $44, but a flurry of research reports in recent weeks have yielded numerous buy ratings and price targets ranging from $53 to as high as $70.

Downtrend
Chase's fall over a year

Back in March, investors cast a wary eye on Chase, when the

Nasdaq Composite Index

went into a tailspin after rocketing up about 70% from late October 1999. The fears revolved around Chase's venture capital arm

Chase Capital Partners

, which holds stakes in many publicly traded technology firms. Among its holdings that were hit at the time were

Cobalt Networks

(COBT)

, which fell more than 50% in the first quarter, and

Triton PCS

(TPCS)

, which endured a steep drop in March.

But Diana Yates, financial services analyst at

A.G. Edwards

in St. Louis, thinks the March selloff in Chase mirrored the Nasdaq Composite Index and was undeserved because the stock price never got inflated the way the Comp did, rising 85% in 1999.

"It never really rallied with the Nasdaq -- nobody wanted to give Chase credit

for its tech holdings at the time," says Yates. "It never had the benefit of the positive side of that. It was like, let's take it out, but we never put it in in the first place," she says.

Along with the Nasdaq, Chase peaked in March, hitting $65 before shedding 25% over two months. The Comp lost about 30% over the same period. So even as the market started to breathe a sigh of relief that the air had been taken out of inflated tech stocks, no one seemed to realize that a little too much air had come out of Chase. (Yates rates Chase a buy, and her firm has not done any recent underwriting.)

Analysts also have focused on the method Chase uses to account for its Capital Partners unit, which involves mark to market adjustments along with the typical cash-liquidation gains. Essentially, this means that any fluctuation in the value of its holdings is reflected in the quarterly earnings statement, regardless of the initial investment cost.

For instance, if a stock drops from $10 to $8 in one quarter, the decline is reflected as a 20% drop for the value of the holding -- even if the initial investment was $2, meaning Chase is actually up 300%.

"This is more of an accounting issue," says John Wimsatt, managing director of bank research at

Friedman Billings Ramsey

in Arlington, Va. (He rates the stock a buy, and his firm hasn't done any underwriting.)

As far as the volatility that hit the tech sector and hurt Chase's venture capital holdings, some say the risk is part of the territory, and on the upside, point to the unit's stellar long-term performance. Chase says its Capital Partners unit has had a 42% internal rate of return since its inception in 1984.

The Fears

Of course, Chase's weak

third-quarter earnings report did little to soothe fears about the risky nature of its private equity business and dependence on capital markets, but many think the worst is over for now.

Howard Barlow, vice president of

WHB/Wolverine Asset Management

in Stamford, Conn., says his firm used the news as an excuse to increase its position in Chase, scooping up the stock when it fell to the low $30s.

"The one-day spike down to 32 was clearly overdone," says Wimsatt. The stock had a fairly quick rebound from that selloff but has still been hanging around the mid-$40s.

Investors weren't all that happy with Chase's Sept. 13 announcement that it would

acquire J.P. Morgan, for a hefty $30 billion, regardless of its solid track record in past acquisitions, notably

Chemical

in 1995 and

Manufacturers Hanover

in the early 1990s.

"Every time Chase is ready to break out and get back in the swing of things, they make an acquisition and it takes the wind out of the stock," says John Babyak, portfolio manager at WHB/Wolverine, noting the depressed stock price over the past year. Following the merger's announcement, the stock endured a 30% slide before bottoming out on its third-quarter earnings report.

Joining

Though much has been said about the difficulty Chase will face in integrating its merger with J.P. Morgan, the deal has plenty of fans who cite revenue gains and rising cost savings as reasons to get excited.

Sean Ryan, banks analyst at

Banc of America Securities

, points out that Morgan and Chase wasted no time hitting the road to make joint business pitches, of which they already have done 70. (Ryan rates the stock a buy, and his firm has not done any underwriting.)

Investors got a glimpse of the sort of future high-powered business the combined banks may attract when

General Electric

(GE) - Get General Electric Company Report

made an impromptu request for advice on its $46 billon bid for

Honeywell

(HON) - Get Honeywell International Inc. Report

. On an operational basis, Ryan says he is "a big fan of the merger." He has a target price of $66 on Chase.

Babyak points out that Chase is trading around 1997 levels. "The stock is very oversold and we believe undervalued and a good buy," he says. "We expect resumption of an upward trend."