These 2 financial actions are smart purchases
Even though prolonged low interest rates remain unfavorable to financial companies, especially banks and insurers, the increase in financial transactions with the reopening of economic activities has recently helped financial stocks grab the attention of investors. This is evidenced by the Financial Select Sector SPDR ETFs (XLF) Gains of 23.9% since the start of the year compared to the SPDR S&P 500 Trust ETF (TO SPY) 14.4% yield.
In addition, the Federal Reserve reported two interest rate hikes from the end of 2023, a year earlier than expected, which should be a boon for the financial sector. These rate hikes should support the profit margins of financial companies. The industry is also expected to grow in the coming months with the integration of advanced technologies into financial transactions. According to The Business Research Company, the global financial services market is expected to grow at a 9.9% CAGR from $ 20.4 trillion in 2020 to $ 22.5 trillion in 2021.
In this context, it might be wise to bet on Capital One Financial Corporation (COF) and Discover financial services (DFS). They have outperformed the broader market this year. Based on the fundamental strength of these companies, we believe their stocks could rise further in the coming months.
Capital One Financial Corporation (COF)
COF is a diversified financial services holding company that provides a range of financial products and services to consumers, small businesses and business customers through branch offices, the Internet and other distribution channels. It operates in three segments: credit cards, consumer banking, and commercial and other banking services. COF is based in McLean, Virginia.
The company paid a quarterly dividend of $ 0.40 per share on May 28, 2021. COF also paid a quarterly dividend of $ 10.20 on June 1 on the outstanding shares of its fixed rate perpetual non-cumulative preferred shares at variable, series E. This movement represents its solid financial strength.
COF’s income from continuing operations increased 37% sequentially to $ 4.20 billion for the first quarter ended March 31, 2021. Its net income increased 30% sequentially to $ 3.32 billion , while its total result assets increased 8% year-on-year to $ 421.81 billion. In addition, its EPS stood at $ 7.03, up 31% year-on-year.
For the current quarter, ending June 30, 2021, analysts expect COF’s EPS to be $ 4.37, a 297.7% year-over-year increase. It has beaten consensus EPS estimates in three of the past four quarters. Its annual revenue is expected to grow 5.3% year-on-year to $ 30.46 billion in 2022. The stock has gained 55.9% year-to-date to close the trading session of ‘yesterday at 154.15 dollars.
COF POWR odds reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. POWR ratings assess stocks based on 118 different factors, each with its own weight.
The stock has an A rating for Sentiment and a B rating for Growth and Momentum. In category B Consumer financial services industry, COF is ranked # 5 out of 51 stocks.
To view all additional POWR ratings for the COF (Stability, Value and Quality), Click here.
Discover financial services (DFS)
DFS, through its subsidiaries, operates as a digital banking and payments company in the United States. It operates in two segments: digital banking and payment services. The digital banking segment offers Discover branded credit cards and its payment services segment operates the PULSE network, an automated teller machine, debit network and electronic funds transfer. DFS is based in Riverwoods, Illinois.
On May 18, Arab Financial Services and DFS signed a strategic network alliance agreement that is expected to increase the global footprint of the two organizations. Matt Sloan, Vice President of International Markets at DFS, said: “By connecting with innovative payment partners like AFS, we are able to provide our cardholders with the global reach and location they need. “
The company’s network volume increased 16.2% year-on-year to $ 115.13 billion in the first quarter ended March 31, 2021. Its profit before tax increased 104.8% sequentially to 2 .08 billion dollars, while its net profit increased 99.4% sequentially to reach 1.59 billion dollars. In addition, its EPS stood at $ 5.04, up 94.6% sequentially.
Analysts expect DFS ‘EPS to hit $ 3.33 for the current quarter ending June 30, 2021, which is a 377.5% year-over-year increase. It has beaten Street’s EPS estimates in three of the past four quarters. The company’s revenue is expected to grow 8.6% year-on-year to $ 2.90 billion for the quarter ending September 30, 2021. The stock has gained 29.1% so far this year. year to close yesterday’s trading session at $ 116.88.
DFS ‘POWR ratings reflect a strong outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. It also has a B rating for growth, momentum, and sentiment.
Click here to also see DFS ratings for stability, value and quality. DFS is ranked # 7 in the Consumer financial services industry.
COF stock was trading at $ 154.36 per share on Wednesday morning, up $ 0.21 (+ 0.14%). Since the start of the year, the COF has gained 57.09%, compared to a 15.23% increase in the benchmark S&P 500 during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal’s a passionate interest in the analysis and interpretation of financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach he takes while advising investors in his articles. After…