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Is JPMorgan's Stock Ahead of Itself?


An excellent third quarter -- but it might be better to wait for the high-fiving to stop.

Is it Friday yet?

Asian stocks were up yet again. The Hang Seng and the Nikkei rose 0.51% and 1.77%, respectively. European stocks were, however, a bit of a mixed bag early this morning. And here in the US, we're currently trading lower.

Here's what I'm focused on this morning:

JPMorgan Chase (JPM):
JPMorgan reported a terrific third quarter yesterday. In case you didn't hear, it put up $0.82, which was a country mile better than the $0.52 Wall Street had been expecting. Not surprisingly, the stock had a good day yesterday and is flirting with its 52-week high.

My thoughts:

1. Clearly it was a great quarter. I was expecting a beat, but that was a blowout and I see why the shares got a nice goose. Of all the players in this space, JPMorgan and Goldman Sachs (GS) deserve the biggest kudos, and given their performances, it's not all that surprising to see their respective stock prices bid up. Jamie Dimon deserves some sort of monument, or at least a medal.

2. I hate to put any kibosh on this party, but the stock may be a bit ahead of itself. For that reason, I'm not going to be chasing it higher at this point. I'd rather wait for the high-fiving to stop and perhaps we'll see some profit-taking. In the high $30s or low $40s, it could be a little more interesting. With the economy and this market still in a fragile state, it's not beyond the realm of possibility.

Xilinx (XLNX):
The chip maker turned in $0.23 for the second quarter, which was a penny north of expectations. It beat on the top line, too.

With the shares trading near their 52-week high, here's where I stand:

1. It wasn't a blowout quarter, but a beat is a beat and it was nice to see. My eyes were even more drawn to the following comment within the release: "The Xilinx Board of Directors announced a $0.02 increase in the quarterly cash dividend to $0.16 per outstanding share of common stock, payable on November 24, 2009 to all stockholders of record at the close of business on November 4, 2009." That's a darn good sign.

2. In the near-term at least, I see more potential risk than reward as it now trades at around 28 times this year's estimate. I won't be buying. If it were to go below $20, I might revisit the situation. Additionally, a few more better-than-expected quarters out of the company may make me change my tune. But unless that happens (or I see some major catalyst emerge), I can't justify bellying up to the bar at this price.
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No positions in stocks mentioned.

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