Investing Advice: Capital One is Underrated Now

Posted On January 30, 2018 12:53 pm

When Capital One Financial (COF) reported earnings earlier this month, the stock initially sold off some three percent as the company missed on both the top and bottom line. Today’s investing advice will take a more careful look at the fundamentals.

A peek behind the numbers shows the credit card company is actually doing gangbuster business, and its shares are poised to charge higher.

The main issue investors seemed to have was that COF increased its loan loss reserve, or the amount of money it’s sets aside for potential defaults. But this was a pre-emptive, and fairly conservative move, that merely reflects the increase in business.

Charge-offs did, in fact, increase by 1.5% to $1.05 billion, but total loans grew at a much faster pace of 8% to $102.2 billion.

This loan growth is the key metric; Capital One operates as a bank holding company, which means it actually issues the loans and profits from collecting fees and interest payments.  This is in contrast to Visa and Mastercard, which simply collect ‘swipe’ fees.

Following the holiday season credit card balances swelled to over a $1 trillion, an all-time record.

Related: Here Are 7 Reasons to Believe the Stock Market Has Peaked

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Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.

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