While Euro Debt Crisis Impacts Banks, JPM Sell-off Might be Overdone

JP Morgan Chase (ticker: JPM), $34.75, along with banking sector in general, has been absolutely pounded as of late, dropping nearly 25% since the end of July. Much of the carnage is due to the European bank crisis, which has spilled over to our shores. While JP Morgan certainly has some exposure to European debt, the sell-off reflected a much larger exposure than warranted.

JPM is yielding nearly 3%, even given a reduced dividend from a few years back. At a TTM (trailing twelve month) multiple of under 7, the share prices are reflective of something akin to 2008. Implied volatilities are way up to nearly 50, which has been a harbinger of rallies in the past for JPM.

Given a comparatively strong balance sheet and solid Tier 1 capital ratios, I feel the shares are a compelling value at these levels. I look for JPM to rise to the 37 level by year’s end.

Tim Biggam
Tradingblock.com

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