The Bullish and Bearish Case for J.P. Morgan in 2014

The bank’s shares gained almost 37% in 2013, while the S&P 500 index rose 29.6% and the Dow Jones Industrial Average rose by 26.5%. Both major index readings were their highest closing bell prices ever. J.P. Morgan also put in new highs on its chart as well.

There are many macroeconomic factors to consider for Jamie Dimon and friends. Most Wall Street strategists are forecasting higher price targets for the stock market in 2014. Analysts see a total return of 10% or more for J.P. Morgan in 2014.

Regulation under the Volcker Rule may bring more risk than the Federal Reserve’s tapering, which may lead to higher interest rates. As long as the short-term borrowing rates remain this low, money-center banks will do well under a steep yield curve. J.P. Morgan is also seeing gains from the end of recessionary environments in Europe and Asia, but its trading operations are certain to see lower profits under the Volcker Rule limitations.

We recently showed the same sort of review for Bank of America, and the caution is some of the same. The 13% gain in the final quarter of 2013 may have very well eaten into the gains of 2014. J.P. Morgan trades at just under 10 times expected 2014 earnings per share, but it trades at 13 times expected 2013 earnings. With only 2% expected revenue growth, this simply feels like too aggressive of earnings growth, even if it is Jamie Dimon and his team.

Analysts expect even higher share prices for 2014, almost as high as $64 for the stock. The street high price target is all the way up at $73. We would also caution that J.P. Morgan’s book value per share was $52.01 as of the end of the third quarter. With the Madoff and mortgage settlements running in the billions, we are starting to wonder how much higher investors will pay above that book value.