Is JPMorgan Still a Good Investment Despite Earnings Miss in Q1 2020?

When JPMorgan Chase (NYSE: JPM) reported their first quarter of 2020 earnings, the market reaction was not entirely unexpected, though unsettling for many long-term investors. This article aims to dissect the current situation, the challenges faced by the major banks, and whether JPMorgan still stands out as a buy for investors.

Market Sentiment and Outperforming Banks

The sentiment in the market has been is that any major bank stock is a risky investment during harsh economic times. In the words of an experienced investor, 'This is a terribly bad time to own any bank stock.' This attitude is not without reason, as the economic volatility brought on by the pandemic has spurred uncertainty and volatility in stock markets.

However, the decision to hold onto JPMorgan despite the earnings miss is a testament to its long-standing reputation as one of the best-performing banks in the industry. An analyst with a long-term perspective asserts, 'JPMorgan is the best of the big banks and it’s a stock I’ve owned for years.' While the situation is clearly precarious, this sentiment reflects a broader understanding that not all banks operate the same way and that there are always opportunities to identify undervalued stocks.

Earnings and Financial Reserves

The announcement that JPMorgan had to set aside significant funds to cover delinquent loans, which inevitably hurt their earnings, has disturbed investors. However, as another investor suggests, 'The basic logic being they set aside money to cover delinquent loans which hurt earnings. If they have to use all that money the market tanks.' This statement poses a critical question: how much of this reserve will JPMorgan actually have to use in the coming months or years?

While this is a speculative question, the investor remains optimistic, stating, 'I doubt it gets that bad.' This optimism is mirrored in the continued ownership of other major bank stocks like Citigroup (C) and Bank of America (BAC), another strong player in the banking sector.

Tactical Investments and Future Prospects

For investors looking for more immediate opportunities, the short-term trend for JPMorgan looks promising. As one analyst noted, the results are setting up nicely for a short swing trade to the upside. The daily trend remains strong up, despite two down days. This is supported by the fact that the daily low has recently coincided with the 21-day EMA, a clear indicator of potential upward movement.

In technical analysis, the hourly chart has also shown interesting movements. The chart tagged and rested on the lower volatility band of Keltner channels and Bollinger Bands, highlighting periods of lower volatility and possibly signaling a rebound.

Valuation and Future Outlook

While the short-term technical indicators look positive, the long-term prospects for JPMorgan should also be considered. The current price-to-earnings ratio (P/E ratio) is around 91, a figure that might represent a relative bargain considering the market’s shifting dynamics. Analysts and investors alike suggest that JPMorgan could be a compelling buy below 80, where the stock may present considerable value for long-term investors.

Conclusion: The Market's Opportunity

Investor decisions are often shaped by market conditions and individual outlooks. In a volatile market, it's essential to weigh both short-term technical indicators and long-term valuation. JPMorgan's earnings miss in Q1 2020 may have shaken some investors, but it also presents an opportunity for those willing to take a strategic approach.

The key takeaway is that while any bank stock carries risk, there are opportunities to identify undervalued stocks that align with long-term investment strategies. As the market conditions improve, JPMorgan may once again be a valuable addition to any investor's portfolio.