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Is there a safe bank stock in this market? Well, given the unprecedented losses on mortgages and mortgage-related assets stemming from the leveraging bubble's excesses: no there isn't. But some banks do offer opportunities for investors who can tolerate high risk, and Capital One Financial (NYSE: COF) in one of these.In general, analysts expect the rate of growth Capital One's loan delinquencies and charge-offs to slow. Further, COF has passed the U.S. Treasury's stress test and will not be required to raise new capital.
More broadly, management has done a better-than-adequate job tightening lending standards, and that fact, combined with rigorous expense management, should enable COF to ride through the banking sector's worst period since the Great Depression of the 1930s. That said, Capital One is a high-risk stock – hence it's not for investors who cannot tolerate a quick 30-50% haircut on unforeseen events. The First Call FY 2009/FY 2010 EPS estimates for COF are a loss of $2.13 and a loss of 32 cents.
Finally, Capital One surged more than 10% Thursday to over $25.50, so it is slightly overbought short-term; hence, consider waiting for pull-pack to $23-24 before buying, but keep in mind the stock may not retreat to that level.
Stock Analysis: Capital One Financial is a high-risk stock. Consider buying a 25% position in COF now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your COF position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $12.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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Reader Comments (Page 1 of 1)
5-08-2009 @ 12:37PM
Gavin j said...
I'm still confused as to why this is high risk if it has: "In general, analysts expect the rate of growth Capital One's loan delinquencies and charge-offs to slow. Further, COF has passed the U.S. Treasury's stress test and will not be required to raise new capital
More broadly, management has done a better-than-adequate job tightening lending standards, and that fact, combined with rigorous expense management."
This paired with it's astronomical growth from $15-$30 in a month tell me the only risk is that you get in too late. This blog post makes no sense to me