Capital One Financial Corp (COF), American Express Company (AXP): What’s in Your Portfolio?

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I know what you are thinking, and believe me, I find it hard to believe as well. However, I’ve been following many banks for a while, and I believe there is an argument to be made that Capital One Financial Corp (NYSE:COF) has the potential to be one of the best investments of the bunch. The fact that I didn’t really start following Capital One Financial Corp (NYSE:COF) until last year might be why I can see the forest for the trees. Truth be told, this company is changing right before investors eyes, but the problems of the past are holding the stock back.

Capital One Financial Corp. (NYSE:COF)

A different kind of hybrid
There is a lot of talk about hybrid vehicles, but Capital One Financial Corp (NYSE:COF) is the only hybrid bank that I know of. The company operates like a traditional bank, offering deposits and loans, but also generates a tremendous amount of revenue from their credit card division. What’s amazing is, though credit cards are supposed to have a higher charge off rate than other loans, Capital One Financial Corp (NYSE:COF) does a good job of managing this credit risk.

In fact, one of the best reasons to consider buying Capital One Financial Corp (NYSE:COF) has to do with their credit quality. If we compare the company’s credit card portfolio, their charge off rate of 2.2% is actually tied with American Express Company (NYSE:AXP), and comes in lower than Discover Financial Services (NYSE:DFS) at 2.36%. If we compare the company’s non-performing loans to traditional banks like Bank of America Corp (NYSE:BAC) or JPMorgan Chase & Co. (NYSE:JPM), the difference is even more stark.

In the most recent quarter, Capital One Financial Corp (NYSE:COF)’s highest non-performing loan rate was just 0.74% from their consumer loans division. By comparison, Bank of America Corp (NYSE:BAC) reported non-performers of 2.53%, and J.P. Morgan’s non-performing percentage was 1.6%. As you can see, Capital One is managing their credit risk quite well.

Cheap and growing
There should be little question that Capital One’s acquisition strategy is paying off in a big way when it comes to loan and deposit growth. While Bank of America and JPMorgan Chase & Co. (NYSE:JPM) reported total deposits up 4.4% and 7% respectively, Capital One grew their deposits by 24.25%. By comparison, American Express Company (NYSE:AXP) and Discover Financial Services (NYSE:DFS) couldn’t match, reporting deposit growth of just 2.5% and 0%.

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