We recently published a list of 10 Best Financial Stocks to Buy According to Billionaires. In this article, we are going to take a look at where Capital One Financial Corporation (NYSE:COF) stands against other best financial stocks to invest in.
Financial stocks had a great run in 2024, jumping over 30% by mid-December and outpacing the broader market. Fidelity noted that concerns about bank failures faded as the economy stayed strong, and improving fundamentals kept the sector on track. With the Fed cutting rates for the first time since the pandemic, lower borrowing costs could boost economic activity, even if they squeeze bank profit margins a bit. There are still risks, like commercial real estate exposure and loan defaults, but the post-election landscape looks favorable, with lighter regulations and more deal-making. Heading into 2025, financial stocks have solid momentum and plenty of tailwinds. This shift is creating fresh opportunities across the financial sector, from capital markets to private credit.
According to Morgan Stanley, capital markets are making a big comeback in 2025, strengthened by lower interest rates, easing inflation, and steady economic growth. After a period of uncertainty, companies and investors are finally feeling confident enough to jump back into mergers, acquisitions, and major spending. With more cash flowing into the market, demand for private credit and infrastructure investments, especially in AI, is on the rise. Private credit is also having a moment, offering companies more flexible financing options. It is growing fast, with assets under management expected to double in the next few years. Many businesses are using private markets to refinance debt and fuel expansion. 2025 is shaping up to be a huge year for strategic deals, leveraged buyouts, and capital raising.
Mergers and acquisitions in financial services are set to stay strong in 2025. After a year of big-money deals in 2024, companies are still looking for ways to grow, stay competitive, and adapt to market shifts. While economic uncertainty and geopolitical tensions remain, financial firms are using M&A to keep up with new technologies, changing customer expectations, and regulatory changes. Many banks and financial institutions are eyeing fintech acquisitions to stay ahead in the digital space while selling off underperforming parts of their business to free up capital for high-growth opportunities. Larger deals are becoming more common, especially as potential financial deregulation in the US could shake up global markets.
Some of the wealthiest billionaires have built some of the world’s largest financial firms or continue to hold major ownership positions in them. These companies specialize in asset management, financial data services, and cryptocurrency trading. Take Warren Buffett, for instance. Investors around the world look to his portfolio for guidance. His investment strategy heavily favors financial stocks, with significant holdings in banks, payment technology firms, and insurance companies. By the end of 2024, he had committed over $100 billion to the financial sector, representing a substantial share of his estimated $267 billion portfolio. Like Buffett, there are lots of billionaire portfolios to watch out for. So, let’s dive into the best financial stocks that Wall Street moguls are backing.
A smiling face of a customer as they make a deposit at this company’s branch.
Our Methodology
To collect data for this article, we scanned Insider Monkey’s database of billionaires’ stock holdings and picked the top 10 companies operating in the financial services industry with the highest number of billionaire investors in Q4 of 2024. The stocks are ranked in ascending order based on the number of billionaire investors.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Capital One Financial Corporation (NYSE:COF)
Number of Billionaire Investors: 22
Capital One Financial Corporation (NYSE:COF) is a financial services company that operates in the United States, Canada, and the United Kingdom, offering a range of banking and lending products. It has three main segments – Credit Card, Consumer Banking, and Commercial Banking. BTIG analysts see huge potential for COF, predicting it could jump over 137% to $427 per share if the Discover merger goes through. They upgraded the stock to Buy from Hold, believing Capital One could use Discover’s payment network to take on Visa and Mastercard. Even if the deal doesn’t happen, the analysts still see upside, expecting Capital One Financial Corporation (NYSE:COF) to use its excess capital for $25 billion in stock buybacks. Bullish analyst sentiment, paired with the favor of 22 billionaire investors, makes COF one of the best financial stocks.
Capital One reported $1.1 billion in Q4 earnings, or $2.67 per share, and $4.8 billion for the year, which comes in at $11.59 per share. Adjusted earnings were $3.09 per share for Q4 and $13.96 for the year, factoring in Discover integration and legal costs. Credit loss provisions increased to $2.6 billion, while reserves dropped to $16.3 billion. Liquidity reserves also fell to $124 billion due to seasonal spending. Credit card performance remained strong, with purchase volume up 7% and revenue increasing 9% year-over-year. Capital One Financial Corporation (NYSE:COF)’s net income was impacted by loan growth, dividend payouts, and $150 million in share buybacks. The company has consistently paid quarterly dividends since 1995.
On March 18, Keefe, Bruyette & Woods maintained an Outperform rating and $232 target on Capital One Financial Corporation (NYSE:COF), dismissing antitrust concerns over its Discover deal as overblown. The firm noted the DOJ’s role is advisory, with final approval resting with the Fed and OCC, and remains bullish on the deal’s approval.
Overall, COF ranks 3rd on our list of the best financial stocks to buy according to billionaires. While we acknowledge the potential of COF to grow, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than COF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.