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Foolish Four holding JP Morgan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JPM)") else Response.Write("(NYSE: JPM)") end if %> crushed analysts' fourth quarter estimates of $2.00 per share by reporting net income of $2.63 a share ($509 million) versus $0.42 a share ($89 million) a year ago. This stellar performance resulted from investment banking fees, underwriting, and managing clients' money.
JPM has greatly benefited from the growth of its equities business, which management built from scratch as part of the company's transformation from a traditional lending bank into an investment bank. For the full year, equity revenues more than doubled, crossing the billion dollar mark ($1.417 billion) compared to its former multi-millionaire status of $699 million in 1998.
Not to be left behind, revenue from credit markets this quarter nearly doubled to $264 million from the 4th quarter a year ago, due to a healthier market environment. For the year, credit card revenues also crossed the billion dollar threshold, rising from $628 million in 1998 to $1.526 billion in 1999. Awesome.
In addition, during the fourth quarter, the company bought back approximately $1.4 billion of its common stock, and announced its intention to repurchase the remaining shares of the $3 billion dollar buyback plan authorized in October 1999 over the next 12 to 15 months, thereby continuing to increase shareholder value.
And what guidance did the company give to its shareholders?
"Going into the new year, we have excellent momentum across our major business lines," said Douglas A. Warner III, JPM's Chairman.
With stellar numbers and a successfully implemented expense control program, which the company is clearly benefiting from, common sense would suggest that the stock should soar. Right?
Wrong! It closed down $4 1/16. We have been guilty of using intelligence and reason to understand the equities markets.
Here are some reasons why the stock might be down:
I vote for Number 5.
No matter what the reason, it's more proof that Fools can't rely on short-term reactions to determine the investment value of a stock in their portfolio. The only way to invest in a stock is to focus on the underlying business of a company, not indecipherable stock market fluctuations. The earnings report, which is available to download at JPM's website, is relatively easy to understand and will give you a strong sense of the company's strengths and weaknesses. If you are interested, it won't take all that long to read -- I promise.
Of course, if you're a Foolish Four investor, you needn't worry about any of these things. Part of the charm of using a long-term, mechanical approach is the luxury of NOT having to concern yourself with quarter-to-quarter developments in a company's business cycle. You know that the companies you are invested in are on the road to recovery; and certainly in JPM's case, they are well into the nicely paved roads of their journey.
In order to make dollars and cents in the market, don't be led by short-term distortions of common sense. Either take the time to study the changing quarterly dynamics of your companies, or use a mechanical approach that makes this kind of study unnecessary.
Over the long-term, common sense will prevail.