Don't Overreact to Dimon's Health Scare

 | Jul 02, 2014 | 11:24 AM EDT  | Comments
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Jamie Dimon is a revered banker, mostly because JPMorgan Chase (JPM) made a lot of right moves in the last few years, chiefly building up a fortress balance sheet that shielded the company from the big losses that so many other banks have taken. That's why the sad news that he has throat cancer is causing the stock of this Action Alerts PLUS name to get hit today.

Should the stock be bought into the weakness?

First, you have to understand that when a company issues a release saying a CEO has cancer but it is curable cancer, and curable in a relatively short period, as is the case here, it is not a reason for selling.

That's because no executive wants to make a positive prognosis about such a horrible disease unless the doctors have given a huge amount of assurance that things will turn out well in the end. The stakes are too high, even for banks, which have a very tarnished reputation when it comes to veracity.

Second, and more important for stock-pickers, there have been three times that stand out when a noteworthy CEO has had to be treated for curable forms of cancer: the 1995 admission from Intel's (INTC) then-CEO, Andy Grove, the 2010 statement from Bob Benmosche, CEO of American International Group (AIG) and the 2012 announcement from Warren Buffett at Berkshire Hathaway (BRK.B).

All three situations proved to be buying opportunities. Intel, which was admittedly in the midst of one of the great '86 microprocessing cycles, doubled in the year after Grove got sick and then returned. Within a month, AIG and Berkshire Hathaway were both higher after the tough news each company released. The companies were true to their word, and all three came back in short order to lead their companies to further success.

Now not to be too grisly, but just playing it ultra-safe, JPMorgan does have a strong bench of executives underneath Dimon, including Gordon Smith, the excellent head of the highly successful consumer bank, and, perhaps, ultimately, Matt Zames, the 43-year-old chief operating officer, although he's a little young to be thought of in in the successor role right now.

No bank runs itself. JPMorgan has had a fairly sterling reputation among banks, but it hasn't all been roses under Dimon, including the "London whale" incident that led to a multi-billion charge and the gigantic $13 billion hit to earnings that Dimon agreed to pay the government for past transgressions. The last quarter itself was nothing to write home about either -- it was one of the weaker in the group.

All that said, this is a quality franchise with a stock that has gotten very cheap compared with the overall market. I think it is, in the end, a proxy, not so much for Dimon's management but for the U.S. and world economy, which I think is improving. That means, to me, that it is a buy on any material weakness on this difficult news.

Tough to say "buying opportunity on curable cancer," but if history be the judge, it should be. 

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