Like most other stocks, JPMorgan Chase (JPM 0.49%) shares struggled for the better part of last year. Unlike most other stocks, however, JPMorgan rallied rather firmly in the final quarter of 2022. Shares are up more than 30% from October's low, versus the S&P 500's (^GSPC 0.02%) more modest 7% gain for the same time frame.
For some investors, this sort of quick, sizable rally seems too much too fast. And to be fair, a 30% gain in less than three months is a relatively unusual move that can be tough to sustain. In this particular case, though, would-be buyers might want to go ahead and take the plunge. It's not too late to step into this powerhouse dividend stock.
A troubling 2022
You know the company. JPMorgan Chase is the nation's biggest bank, as measured by assets, with $3.3 trillion under its umbrella. It serves consumers and corporations alike with offerings ranging from checking accounts to credit cards to lending to investment banking. JPMorgan is a top-tier name in every area it operates.
This strength didn't help much in early 2022. That's when the COVID-19 pandemic began spreading again, with Russia invading Ukraine shortly thereafter. Inflation was already soaring at the time but continuing to rise into 2022, and the Federal Reserve started ratcheting up interest rates in March of last year. The environment was anything but conducive to economic growth. Bank investors simply responded to the apparent situation at hand.
As is so often the case, however, investors overshot their target by focusing too much on the past (and even the present) and not focusing enough on the future. It's a company's foreseeable future that plays the biggest role in determining a stock's price.
But first things first.
Yes, last year was anything but an impressive one from JPMorgan Chase. Revenue growth will roll in at mere single digits -- and earnings are projected to fall by nearly a third when the company reports its fourth-quarter figures in February. Its investment banking and mortgage lending businesses both slowed dramatically in 2022, with the company's investment banking revenue being nearly cut in half over the course of the past year.
Don't jump to conclusions without looking at the bigger picture, though. Last year isn't the problem. Impossibly tough comparisons to 2021's results are the problem.
Think back to headlines a little over a year ago when the world was easing its way out of pandemic-prompted lockdowns. Record levels of mortgage borrowing in the United States coincided with record demand and record prices for homes. Companies were raising money like crazy, too. Underwriting hit a proverbial wall in 2020, but with the market roaring in 2021 in anticipation of a stimulus-driven economic rebound, corporations capitalized on that strength. Refinitiv's latest Global Investment Banking Review for the year indicates a record-breaking $159.4 billion worth of investment banking fees were generated in 2021. It was simply the right time and the right place to be in the banking business.
As could have been predicted, though, the world suffered a post-party hangover in 2022.
Don't assume this relative weakness is the shape of things to come, however. It isn't. As has been the case with every bear market and/or major economic headwind thus far, this one will eventually end as well. And it may end sooner than you think.
Recovery on the horizon
While this year is starting out on the same lethargic foot we ended last year on, the year is also set to serve as a turning point of sorts. The Conference Board is calling for U.S. GDP growth of 1.7% in 2024 following a stagnant 2023. JPMorgan itself is a bit more optimistic, looking for economic growth of between 0.5% and 1% this year before normalizing at 1.8%. That's not great, but it's certainly serviceable.
Bolstering the bullish case is a likely recovery from the stock market. Expecting rekindled economic growth, Bloomberg reports a consensus year-end price target of just above 4,000 for the S&P 500. That's 6% better than its current price, though bear in mind that it may move lower before moving higher again.
Of course, lending and investment banking will recover with the economy, in turn lifting JPMorgan's results.
Data source: Thomson Reuters.
Sensing this brewing (albeit distant) tailwind, investors are now unwinding their overzealous selling of JPM shares. There's room for more, though, in light of the depth of the sell-off compared to the depth of the economic headwind that caused it.
And this bullish argument is further supported by sheer valuation. JPMorgan Chase shares are still priced modestly at 11.6 times last year's likely earnings and 10.5 times this year's projected per-share profits. The dividend yield of just under 3% is also above the market's average for a blue chip of this ilk. That's a dividend, by the way, that was never in any real jeopardy. Last year's projected bottom line of $11.68 is still well above the stock's present annualized dividend payout of $4 per share. This year's expected profit of $12.86 per share makes for an even larger cushion.
JPMorgan Chase is best viewed as a long-term holding
There's no denying JPMorgan Chase shares' 30% run-up from October's low can be intimidating. Stocks usually don't move so dramatically without some sort of penalty soon taking shape.
In this instance, though, the bigger risk remains missing out on more upside rather than suffering more downside.
Again, mortgage rates are expected to stabilize this year, easing some of the current expenses in buying a home. At the same time, while this year's mergers, acquisitions, and public offerings lineup should look a lot like last year's subdued pace, this tepidness is already priced into JPMorgan Chase shares. What's not priced in is a likely rekindling of dealmaking in 2024.
Bottom line? Stocks are ultimately priced on a forward-looking basis, and the forward-looking view of JPMorgan is encouraging. Investors simply lost sight of this bigger picture early last year, distracted by panic-inducing headlines overstating the market's -- and JPMorgan's -- actual long-term risks.
