As expected, Capital One Financial Corp.'s (COF) stock has seen increased interest in the past six months, on the argument that charge-offs will peak in mid-2010. First recommended on May 7, 2009 at a price of $29.41, if you bought COF in May, you're up about 37%. However, technically the stock will face substantial two-year resistance at $43-45, more resistance above that, and then psychological resistance at $50. That's considerable resistance to overcome in a modest-growth U.S. economy.
In other words, even though the U.S. recovery will be strong enough to keep Capital One's business model headed toward higher levels of success, the risk/return is not adequate: the upside is not large enough to warrant the risk, hence the decision to take profits at this time. The First Call FY2009/FY2010 EPS estimates for COF are 27 cents to $1.88.
Stock Analysis: Close Position and take profits with Capital One. Capital One's business model will be re-evaluated in another three months.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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