5 Reasons to Buy JPMorgan Now

NEW YORK ( TheStreet) -- The dismal year-to-date performance of JPMorgan Chase's ( JPM) stock underscores the case why you should invest in the bank now.

A few years from now, you may be looking back at the killing you missed on JPMorgan Chase. The shares are bargain-priced right here, and you can add on the dips.

Shares of the nation's second-largest bank by total assets -- running a close second to Bank of America ( BAC) as of June 30 -- closed at $32.30 Monday, for a 22% year-to-date decline. This compared to a 53% decline for shares of Bank of America, while Citigroup ( C) was down 44% to $24.49 and Wells Fargo ( WFC) was down 15% to $26.13. In comparison, the benchmark KBW Bank Index was down 28% year-to-date, closing Monday at 37.45.
JPMorgan Chase CEO Jamie Dimon

So JPMorgan's stock performance measures up decently against the industry's performance.

With the largest banks looking at a very rough third-quarter for trading and capital markets revenue, along with lower fee income from the new rules lowering the interchange fees that banks charge merchants to process debit card purchases -- as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law by President Obama last July -- JPMorgan has seen a slew of analyst cuts to its earnings estimates and price targets.

The consensus among analysts polled by FactSet is for JPMorgan to report third-quarter earnings of 96 cents a share, following EPS of $1.27 in the second quarter and $1.01 in the third quarter of 2010.

Here are 5 reasons to buy JPMorgan Chase now:

5. The shares are cheap.

The shares trade for less than six times the consensus 2012 EPS estimate of $5.24, and for just a hair above the company's June 30 tangible book value of $31.52, according to SNL Financial.

4. The dividend ain't too shabby.

JPMorgan is paying a quarterly dividend of 25 cents a share, which translates to a not-too-shabby dividend yield of 3.10% based on Monday's market close. That dividend, being comfortably supported even by reduced earnings estimates, for a company trading just above book value, which has posted earnings in excess of the 25-cent payout for the past 12 quarters, seems very solid.

3. Buybacks could provide more support for the shares.

There could be further support for the shares from significant buybacks, as the company' board of directors has authorized a $15 billion multi-year share repurchase program, "of which up to $8.0 billion is approved by the Federal Reserve for 2011, to, at a minimum, repurchase the same amount of shares that it issues for employee stock-based incentive awards."

2. Analysts love the stock.

Despite the revenue headwinds for JPMorgan -- and for all of the large U.S. banks for that matter -- most analysts are mostly onboard the JPMorgan bandwaggon.

KBW analyst David Konrad said in a Monday report that he expects JPMorgan Chase "to report EPS of $0.85, which includes approximately $0.20 per share in litigation expenses," and that investors will make "effort to obtain additional information about the depth and duration of the slowdown in economic activity--both domestically and globally."

Konrad expects the company to "to post revenues of $22.6 billion, down 18% linked quarter, consisting of interest spread income of $11.3 billion (-5% linked quarter) and fee income of $11.3 billion (-27% linked quarter)."

Despite his gloomy revenue outlook for the third quarter, Konrad continues to rate JPMorgan Chase "Outperform," saying that "if JPM indicates that loan demand was strong and provides more disclosure and comfort regarding European exposures, the stock could trade higher despite the relatively weak revenue quarter that we expect."

Paul Miller of FBR Capital Markets on Monday reiterated his "outperform" rating on JPMorgan Chase, while lowering his price target to $46 from $56, and cutting his third-quarter EPS estimate to $1.07 from $1.39, and his 2012 estimate from $5.03 from $5.45 and his 2013 EPS estimate to $5.65 from $6.10. The analyst said his third-quarter estimate was lowered "to reflect lower trading and capital markets revenue" and that the 2012 estimate was cut "due to lower net interest margin and loan growth expectations."

These analysts clearly state the case for a rocky road ahead for JPMorgan's revenue, but 22 out of 24 analysts covering the compoany like it as a long-term play. The remaining two analyts have neutral ratinga on the shares.

The consensus 12-month price target for JPMorgan's shares according to analysts polled by FactSet is $48.35, implying 50% upside for the shares.

1. Bad Headlines are Your Friends.

JPMorgan Chase faces plenty of risk over coming quarters, with plenty of revenue challenges, just like any other large bank, and continued mortgage putback risk, although to a much lesser extent than Bank of America. The coming implementation of the Volcker Rule promises to be a nasty regulatory battle and there will be plenty of headline risk, with additional upheaval in Europe and the likelihood of additional layoffs on Wall Street.

But there's a reason that nearly all of the analysts covering JPMorgan Chase rate the shares a buy. The economic and political upheaval are presenting an amazing bargain for investors. The company has been steadily profitable, the dividend is significant and easily supported even by the expected reduced earnings, and with the endless stream of market gloom, the company trades just above its liquidation value.

-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.