Visualizing the Value in JPMorgan Chase & Co Stock

The Motley Fool's Financials Bureau Chief Matt Koppenheffer recently expressed a bullish outlook on JPMorgan Chase (NYSE: JPM  ) stock over the long haul. Negative headlines have sent the stock to lows that offer investors an attractive entry price into a great collection of businesses that look poised to endure, he argues.

Sure, the stock price is lower. But just how good is the value at today's price? Let's visualize the opportunity.

Since 2007, JPMorgan's tangible book value has doubled. Meanwhile, during that same period, shares are up just 17%. The result is a generally downward trend in the JPMorgan's tangible book value multiple.

JPM Price / Tangible Book Value Chart

JPM Price / Tangible Book Value data by YCharts.

Over the last year or so, the valuation has been recovering, but it still remains almost irrationally low.

Though JPMorgan stock has rallied from the depths of the recession, it still trades substantially lower in relation to tangible book value than it did during the decade leading up to the 2008 recession. Back then, a 2.5 times price to tangible book value ratio was the norm for the company.

JPM Price / Tangible Book Value Chart

JPM Price / Tangible Book Value data by YCharts.

But why JPMorgan? Both Bank of America (NYSE: BAC  ) and Goldman Sachs (NYSE: GS  ) , for instance, trade at lower price to tangible book value ratios, 1.1 and 1, respectively, versus JPMorgan at about 1.4.

Expressed in two charts, JPMorgan CEO Jamie Dimon & Co. are running an impressive show.

JPM Return on Equity Chart

JPM Return on Equity data by YCharts.

JPM Return on Assets Chart

JPM Return on Assets data by YCharts.

Not only has JPMorgan's performance been more reliably consistent than Bank of America's and Goldman Sachs's over the past two years -- it's been better. And though JPMorgan may only be outperforming Goldman Sachs by a smidgeon, a smidgeon of advantage adds up handsomely for investors over the long haul.

JPMorgan's lawyers are certainly busy. In the company's most recent quarterly report, the company quantified the risk of its potential losses due to ongoing investigations at anywhere from $0 to $6.8 billion in excess of reserves.

While $6.8 billion is certainly hefty, the company looks poised to handle the costs related to its litigation.

To illustrate, consider this $6.8 billion as a proportion of the company's shareholder equity and its trailing-12-month net income.

Source: Data for both charts retrieved from Q2 2013 10-Q filing and Morningstar.

For investors with a Foolishly long-term time horizon, $6.8 billion is nothing but a tiny blip.

But as Koppenheffer pointed out, it's not necessarily this particular sum of $6.8 billion that is the real risk to JPMorgan's business, it's the risk that these ongoing investigations could potentially inhibit the company's collection of businesses by either damaging their reputations or limiting their operations due to particular legal action.

Still, it's nice to know the company can sufficiently muster up the cash needed to cover the litigation it's facing.

A solid investment
With the S&P 500 trading at almost 18 times earnings, it's getting increasingly more difficult to find glarring value in the stock market. JPMorgan stands out in this market as a solid performer trading at an excellent price. The company faces real risks -- but at just 1.4 times tangible book value, this risk seems more than fairly baked into the stock price.

Investing in JPMorgan amid unending negative headlines may not be the popular move, but it's likely a good one.

Let the blissful noise of pessimism and the kind gift of a sell-off soothe your contrarian spirit.

You Haven't Missed the Opportunity
Have you missed out on the massive gains in bank stocks over the past few years? There's good news: It's not too late. Bargains of a lifetime are still available, but you need to know where to look. The Motley Fool's new report
 "Finding the Next Bank Stock Home Run" will show you how and where to find these deals. It's completely free -- click here to get started.

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2614799, ~/Articles/ArticleHandler.aspx, 9/27/2016 10:09:19 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 53 minutes ago Sponsored by:
DOW 18,228.30 133.47 0.74%
S&P 500 2,159.93 13.83 0.64%
NASD 5,305.71 48.22 0.92%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/27/2016 4:01 PM
JPM $66.36 Up +0.58 +0.88%
JPMorgan Chase CAPS Rating: ****
BAC $15.29 Up +0.20 +1.33%
Bank of America CAPS Rating: ****
GS $162.89 Up +1.41 +0.87%
Goldman Sachs CAPS Rating: ***