We recently published a list of 10 Best Bank Stocks to Buy in 2025. In this article, we are going to take a look at where Capital One Financial Corporation (NYSE:COF) stands against other best bank stocks to buy in 2025.
2024 was a stellar year for banking giants in the United States. According to a report in the Financial Times, the seven largest banks in the country by deposits accounted for 56% of the industry’s profits during the first nine months of the year, up from 48% during the same period in 2023.
Among these, the four biggest banks collectively reported around $88 billion in profits between January and September 2024, representing 44% of the American banking industry’s profits. This puts them on course to grab their largest industry share since 2015.
READ ALSO: 10 Best Bank Penny Stocks to Buy According to Hedge Funds and 10 Best Financial Stocks To Buy According to Hedge Funds.
The Federal Deposit Insurance Corporation (FDIC) has stated that equity capital increased by 3.5% in Q3 2024 to $81.6 billion, reflecting the growing capitalization in American banks. In November, the Federal Reserve Board found that 99% of the country’s banks reported capital above the regulatory requirements. This significant improvement from 2020 highlights the banking industry’s collective ability to sustain unforeseen losses.
Credit rating agency, Moody’s, has also upgraded the global banking industry from negative to stable for the first time since 2023, citing monetary adjustments and interest rate cuts among G-20 countries as reasons behind the upgrade. On December 18, the Federal Reserve announced the third cut for the year, reducing the central bank’s target interest rate by a quarter-point to between 4.25% and 4.5%.
Trump’s victory in the US presidential elections has raised hopes of lax regulations in the financial sector amid growing concerns about antitrust scrutiny and capital requirements slowing down investment banking and lending revenues. While the President-elect has yet to name his picks to head the country’s banking agencies, potential nominees are already hinting at pulling back regulations.
Financial analysts believe reduced oversight and a business-friendly environment are likely to drive revenues and loan growth and improve banks’ bottom line. At the same time, they also warn of the risks ongoing geopolitical conflicts can have on the general outlook of the global economy.
Increasing trade tensions, with growing protectionist policies can also hurt investment flows in 2025. Following his election victory, Trump has vowed to impose steep tariffs on imports from Canada, China, and Mexico, which could increase costs for manufacturers. The 78-year-old last month also threatened the EU with tariffs if it does not buy more oil and gas from the United States.
Methodology
For this article, we sampled stocks from an ETF issued by Invesco with exposure to banking companies. From there, we selected the 10 stocks with the highest number of hedge fund investors, based on Insider Monkey’s database of over 900 prominent hedge funds as of Q3 2024. The 10 best bank stocks to buy in 2025 have been ranked in ascending order based on the number of hedge funds holding stakes in them. Where two or more stocks were tied on hedge fund sentiment, we used a higher market cap as a tiebreaker between them.
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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A smiling face of a customer as they make a deposit at this company’s branch.
Capital One Financial Corporation (NYSE:COF)
Number of Hedge Fund Holders: 67
Capital One Financial Corporation (NYSE:COF) is an American bank holding company that owns the Capital One Bank. It provides a range of financial products and services to customers, businesses, and other clients through its digital channels, branch locations, and cafes. COF operates through three segments: Consumer Banking, Commercial Banking, and Credit Card. It is one of the best bank stocks to buy in 2025.
On February 19, 2024, the company announced that it had entered into a definitive agreement to acquire Discover, one of the largest card issuers in the U.S., for $35.3 billion. Under the terms, upon closure of the deal, Capital One Financial Corporation (NYSE:COF) would own 60%, while Discover’s shareholders would have a 40% stake in the combined company.
The move has bolstered investor optimism around the stock. Amalthea Fund stated the following regarding Capital One Financial Corporation (NYSE:COF) in its Q3 2024 investor letter:
US Credit cards have become a concentrated business. The leading players in order are Chase, a part of JPMorgan, American Express, Citi, Capital One, Bank of America, and Discover. A combination of Capital One and Discover will become the number two player.
Capital One Financial Corporation (NYSE:COF)’s financial position also remains solid. During its recent Q3 2024 earnings call on October 24, the company reported another strong quarter, driven by stable consumer credit results, high net interest income, and growth in its domestic card and auto businesses. Total revenue increased by 5% year-over-year to reach $10 billion. Net income for the quarter improved significantly sequentially as well, from $597 million in Q2 to $1.8 billion in Q3.
Considering its steady financial position and the impending acquisition of Discover, Wall Street analysts are bullish on the stock, with a consensus Buy rating. Hedge fund sentiment around Capital One Financial Corporation (NYSE:COF) is improving as well. According to Insider Monkey’s database for Q3 2024, 67 hedge funds held a stake in the company, up from 65 at the end of the second quarter.
Overall, COF ranks 6th on our list of best bank stocks to buy in 2025. While we acknowledge the potential of banking companies, our conviction lies in the belief that 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.
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Disclosure: None. This article is originally published at Insider Monkey.