Joe Terranova Capital One Financial Corp COF-N BUY Feb 19, 2025

(Top Pick Jan 9/15, Down 5.91%) He thinks you will have significant credit card growth in the US next year. There is potential for dividend growth.

You have to start with a top-down analysis. Do you like financials? He can make a great case that financials will be much higher 5-10 years down the road. Remember, this is one sector that has never come back from the peaks that they held before the 2008 subprime crisis, so valuations generally are low. Also, it is one of the few groups that can benefit from higher interest rates. He feels this one has an excellent franchise. They are with the credit cards which is a growing way people pay worldwide. They also have some great individual banks.

*Short*. The Company derives a good chunk of its revenue through its credit card business of about 40%, and its auto financing business, another 20%. Of that business, approximately one 3^rd is subprime. One weak link in the US market is the subprime market where delinquencies and some of the charges are going to increase. Dividend yield of 2.1%. Thinks the stock can trade down to $59. (Analysts’ price target is $98.)

The company itself is fine, but the capital/lending cycle concerns him, where bankruptcies will increase and decrease earnings, buybacks and dividends.

His favourite in this industry, given the Discover-Capital One merger because he doesn't expect usery fees.

With regulation ahead, it's now more likely that their deal with Discover Financial will finally close--it's been taking forever. If so, COF could go up 25 points. No matter what, COF will be fine.