Discover Financial Services LLC (DFS-N)

The Capital One merger will work, and doesn't fear the Justice Department will block it.

Its merger with Capitol One will likely go ahead under Trump, since Washington will purse fewer anti-trusts cases. Shares soared today and will continue to climb.

Payments and financial technology is a great group. He has preferred V-N for a long time with a more attractive business model. It has a great international growth path in front of it. Don’t buy the laggards.

(A Top Pick April 26/16. Up 5%.) He just got out of this recently. It has been falling along with all of the financials in the last 2 months. He still likes the name.

This is a direct bank as well as a card business. Very, very strong earnings growth. Also, have a strong loan growth. Really a top pick in the financial services sector. Attractively valued. Cheap and very good growth. Dividend yield of 1.96%.

This is a card issuer. Numbers were quite favourable today and the space is acting very well. He prefers and owns Synchrony Financial (SYF-N).

It was a real darling for a while. They are more of a card company than a network. The whole sector is under pressure until you see a turn. The technicals are not confirming a positive fundamental story.

(A Top Pick Nov 18/14. Down 16.94%.) This is a theme that should have worked, but didn’t. They spent a lot trying to grow their loan book, and the challenge is that earnings growth is going to be a little muted.

Have a credit card business as well as a consumer lending business, so they get great leverage through rising interest rates which he thinks will happen. Thinks costs are going to come down moving into next year. Stock is cheap at under 10X and they are returning a lot of capital to shareholders.

Discover Financial (DFS-N) or Visa (V-N)? Has recently come off quite a bit on the back of a missed earnings quarter. They also provided some forward negative guidance. He owns MasterCard (MA-N) which is very similar to Visa in terms of valuations. Visa has a much stronger earnings profile, and given the fact that the technicals are looking a bit rough on this one, he would wait until they turn around a bit and have an earnings surprise.

The general improving economy theme. Predominantly a US play, targeting the middle income earner who uses credit. Credit cards should do very well. This one actually takes credit risk, which it is now the time to do. They did well in the stress test. There are share buy backs. It has been an underperformer against Visa and MasterCard.

$54.72 model price, negative 13.5%. Would not buy it here. He got it at $4 and still has a little position.

There are a number of ways to play credit cards, but he wants exposure to the credit card that has the best position for better consumer spending, job growth and wage growth. This company fits that bill. They offer a “no fee” credit card to the middle-income segment of the US economy. Offers a very good customer service and rewards program that the middle-income earner doesn't normally get. Very strong loan growth. Compared to regional banks it has a higher ROE, higher net interest margin, and yet it trades below an earnings multiple to the regional banks. Feels there is significant growth here.

He likes the credit growth story in the US. Thinks consumers are very well positioned to increase spending. If you look at consumer spending growth, it has only averaged 2% since the global financial crisis. The long-term average is much, much higher than that. Credit card receivables since about 2007 are still down about 15%, compared to where they were several years ago. That tells you that despite the fact that the US economy has done better, consumer spending hasn’t really accelerated. For the 1^st time, we are starting to see credit standards at originations for both credit card receivables and mortgages ease. Lenders are starting to become a little bit less strict about who they give money to. This is a good story and they are going to have the ability to increase their market share and you should see a better

Credit card receivables in the US are still very depressed. He expects that as the economy continues to do a little bit better, you should see credit growth. Non-revolving credit growth has averaged less than 1% a year during the last 3 years. This company has been able to increase market share by increasing its distribution network and they should get the full benefit of that credit growth. Outstanding capital ratio. They are also buying back stock and giving dividend increases.