It’s no surprise to me that Credit Suisse Group AG (ADR) (NYSE:CS) added Discover Financial Services (NYSE:DFS) to the focus list on March 5 of this year. Discover has an awesome business model, and it all starts with the cards. Even through the recession of 2008, consumers kept paying their credit cards. Studies showed that consumers tend to pay their cards before all other bills, including their mortgages. This matters because Discover Financial Services (NYSE:DFS) tries to add a lot of new customers by giving away freebies on its cards, so it really can’t afford delinquencies.
With all those new customers, Discover is now banking on building a business model beyond cards. While Discover may give away the farm on its card business, giving customers 5% cash back on purchases, every card customer that goes over to another of Discover’s services is nearly pure profit. For example, when Discover Financial Services (NYSE:DFS) lends a mortgage, it doesn’t have the same expenses (real estate, staff, etc.) that a Bank of America office would.
Investors should track Discover’s continued ability to convert new card members over to other banking services. If it can do so, the company’s growth should continue.
Sharp-dressed profits
If you’re a man, and you’ve purchased a shirt recently, you probably bought it from PVH Corp (NYSE:PVH). This company’s business model takes advantage of a tactic I call “the illusion of choice.” Whether you buy a shirt from Calvin Klein, Van Heusen, IZOD, or Hilfiger, it all goes into PVH’s coffers. This allows PVH to enjoy a near monopoly while still allowing customers to believe that they’re being picky.
Credit Suisse added this apparel powerhouse to the Focus List on April 29, and for good reason. Revenue has grown 20%, and earnings 12.83%, over the past five years. The company has also seen stronger earnings lately, with the most recent quarter showing a beat of $1.60 vs. expectations of $1.50/share.
In the stock market, a lack of competition is a great thing. I think PVH makes sense right now and going forward. The illusion of choice is alive and well with this retailer!
Focus, focus, focus
Does it make sense to “copy” Credit Suisse Group AG (ADR) (NYSE:CS)’s Focus List? The track record certainly would suggest so. But I think these recent additions should be purchased before other Focus List names, because of their underlying fundamentals.
All three of these companies make sense right now. Agrium has megatrends at its back, Discover has a wonderful business model, and PVH has significant market share.
Adem Tahiri has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article 3 New Stocks on Credit Suisse’s Focus List originally appeared on Fool.com.
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