Discover Financial Services (DFS), Capital One Financial Corp. (COF): Two Credit Card Stocks Worth Checking Out

Page 2 of 2

In this case, the negative aspects are a bit more poignant than the positive ones. As mentioned before, Best Buy Co., Inc. (NYSE:BBY)’s portfolio sale will negatively impact the company. The sale will also present a challenge regarding the sustained weakness in card demand that was previously noted by management. In 4Q12, total revenue declined primarily by higher card revenue suppression to $5.6 billion and asset yields decreased 0.52% to 7.36% from the previous quarter.

For the reasons stated above, I consider that between these companies, Discover Financial Services (NYSE:DFS) Financial looks most promising. Its card business is in an excellent position to grow further:it’s account acquisition costs fell, delinquency rates also decreased and it is developing new products that could generate more revenue. We have to add that it is currently undervalued if we compare its P/E ratio of 9.9 to Mastercard Inc (NYSE:MA)’s  24.3 and Visa Inc (NYSE:V)’s 25.6. Moreover, its PEG ratio is 0.89, against MasterCard’s 1.1 and Visa’s 1.2.

Damian Illia has no position in any stocks mentioned. The Motley Fool owns shares of Citigroup Inc (NYSE:C).

Page 2 of 2