Despite Many Factors Stacking Up Against JPMorgan, Rafferty Capital Wants You To Own The Stock

Noting that JPMorgan Chase & Co. JPM shares were up 28.6 percent since the Trump election, Rafferty Capital’s Richard X. Bove expects the stock to decline in the near term before it “regains positive momentum.”

The analyst maintains a Buy rating on the company, while raising the price target from $96 to $97.

The Wrong Reasons

Mentioning that JPMorgan Chase’s share price appreciation is thrice the pace of the market gain of 10.3 percent over the same period, Bove stated, “It is becoming apparent, however, that the stock is up for the wrong reasons. There is an expectation that there will be a significant tax cut this year. A review of the Federal budget suggests that this may not be feasible. Fiscal stimulus may not be feasible either.”

The analyst also believes the market expects the new Trump administration to implement deregulation in the banking industry, although it does not appear likely at present.

Bove believes that while there could be some changes in “peripheral issues impacting the industry,” core deregulation has not even been considered.

“In fact, it is quite likely that there will be increased regulation in sectors that are important,” the analyst said.

Also, Bove believes that while there could be an increase in interest rates, which would meaningfully drive bank earnings, they would also lower bank book values.

In addition, if managements were to implement aggressive share buybacks, it would do “even more harm to bank book values and ultimately the stock prices.”

For the near term, Bove expects the outlook for the lending industry to remain “muted at best.”

The Right Reasons

On the other hand, the analyst pointed out that bank earnings had been trending up, especially JPMorgan Chase.

Also, the economy is growing and is expected to persist at a modest pace of 2 percent per year for some time.

“Moreover, the outlook for the capital markets divisions of the bank is quite good. Costs are being controlled. Margins are improving,” Bove added.

All of this points to JPMorgan Chase being able to generate positive results going forward, which is the "right reason to own the stock."

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This Algo Is Bullish On Banks And Tech