Source: PaxForex Premium Analytics Portal, Fundamental Insight

Last week's setback for the stock appears straightforward at first glance. Contrary to expectations, JPMorgan Chase did not revise its 2024 revenue guidance despite posting first-quarter results on Friday. As a result, shares took a tumble, dropping by 6% and extending a sell-off that had begun in late March. The stock is now down 8% from its peak.

However, the situation is not entirely negative; there is a silver lining to this dip. It presents a great opportunity to invest in one of the financial sector's leading stocks at a discounted price. Here's why:

In the three-month period ending in March, JPMorgan Chase converted $42.6 billion in revenue into a per-share operating profit of $4.44. Both figures surpassed expectations of $41.9 billion in revenue and $4.11 per share profit. Moreover, they marked improvements over the figures from the same period a year earlier, which stood at $39.3 billion in revenue and $4.10 per share profit, respectively.

The main hurdle was the guidance provided. JPMorgan anticipates generating approximately $90 billion in net interest income this year, consistent with its outlook from three months ago. However, investors had anticipated an increase of $2 to $3 billion in this figure. The market's reaction to this unexpected news was a minor upheaval.

Nevertheless, there are some positive aspects hidden within JPMorgan Chase's Q1 numbers, further supporting an already optimistic outlook.

Put simply, this banking behemoth is outperforming many of its competitors in the current environment.

Consider its decreasing losses on loans as a prime example. While Wells Fargo and Citigroup are both witnessing notable increases in their charge-offs and loss provisions, JPMorgan's total allowance for credit losses actually decreased slightly between the fourth quarter of the previous year and the first quarter of 2024. Although charge-offs and delinquencies saw a marginal uptick last quarter, the majority of this growth stemmed from its credit card division. Furthermore, its total credit loss allowance to loan portfolio ratio has remained stable over the past year.

Moreover, despite the bank's decision not to revise its previous net interest income guidance for 2024, JPMorgan Chase's interest income grew year over year in the last quarter, from $20.7 billion to $23.1 billion. In contrast, Citigroup's net interest income saw only a 1% increase, while Wells Fargo experienced an 8% decline on a year-over-year basis.

It's also important to note that although JPMorgan Chase didn't adjust its interest income outlook for the current fiscal year, its projection of approximately $90 billion in net interest income for 2024 still exceeds the figure from 2023. Additionally, growth in other areas should offset any potential slowdown in interest income growth.

Furthermore, following a challenging 2023 for most of the bank's operations, several positive developments emerged during Q1. For instance, investment banking fees rose by 18% compared to the previous year and were up by 20% from the fourth quarter. Similarly, wealth management revenue and lending-based fee income also experienced notable increases.

This tangible growth lays the groundwork for a potentially robust recovery in the capital markets and corporate fundraising sectors in the latter half of 2024. Meanwhile, the Federal Reserve indicates that the banking industry as a whole anticipates heightened demand for new loans this year, driven by anticipated interest rate cuts.

Additionally, there are less apparent factors at play, such as JPMorgan's robust balance sheet and subsequent efficiency measures.

Recall the liquidity crises experienced by SVB Financial's Silicon Valley Bank and First Republic Bank last year. At the core of their liquidity challenges were excessive long-term interest-bearing assets intended for long-term retention (held to maturity, or HTM), and insufficient short-term interest-bearing securities that could be swiftly sold (available for sale, or AFS). While most banks hold both types of assets, the key lies in maintaining a balanced proportion of the two. Silicon Valley Bank and First Republic Bank failed to achieve this balance.

To its credit, JPMorgan Chase was never truly at risk of liquidity issues, neither then nor now. However, the bank has successfully reduced its less liquid HTM holdings and increased its AFS securities. This affords the bank greater fiscal flexibility should the need arise.

Similarly, what JPMorgan refers to as its "fortress balance sheet" can withstand losses of up to $520 billion without facing significant financial strain.

However, the significance of this balance sheet goes beyond its sheer liquidity. It enables the company to utilize its assets more efficiently and profitably. As of Q1, JPMorgan's return on total equity (ROE) stands at 17%, with its return on tangible common equity (ROTCE) reaching 21% for the quarter. In contrast, Wells Fargo's ROE dropped to 10.5% in Q1, while its ROTCE declined from 14% a year ago to 12.3% last quarter. Citigroup's corresponding figures for the quarter are 6.6% and 7.6%, respectively.

However, companies are more than just numbers; they have their own unique characteristics and traits. This can influence their stock performance. JPMorgan is no exception.

Nevertheless, truly exceptional companies consistently deliver strong financial results. JPMorgan Chase has been achieving this for years and continues to do so.

It's clear: JPMorgan is one of the strongest names in the financial sector, if not the strongest. The recent dip in its stock post-earnings presents a buying opportunity, even if the exact bottom hasn't been reached yet. Investors can step in while shares are priced at roughly 12 times this year's projected earnings and enjoy a yield of a little over 2.3%.

As long as the price is above 175.00, follow the recommendations below:

• Time frame: D1
• Recommendation: long position
• Entry point: 182.77
• Take Profit 1: 195.00
• Take Profit 2: 205.00

Alternative scenario: 

If the level of 175.00 is broken-down , follow the recommendations below:

• Time frame: D1
• Recommendation: short position
• Entry point: 175.00 
• Take Profit 1: 165.00
• Take Profit 2: 155.00