On a down day for major market averages, Paul Hickey, co-founder of Bespoke Investment Group, and Phil Camporeale, portfolio manager at JP Morgan Asset Management, discussed the ongoing volatility. They both appeared on CNBC's 'Closing Bell Overtime' on March 5 to talk about how tariff policy raises uncertainty around growth and earnings outlook.
Camporeale highlighted the difficulty of navigating the rapid pace of headlines surrounding trade discussions out of Washington. Entering the year with a 10% equity overweight, JP Morgan has since reduced this to 5%, reallocating some exposure to US, developed non-US, and emerging markets. Camporeale noted that while policy uncertainty raises questions about growth and earnings outlooks, the US economy remains strong, with a 4% unemployment rate, 3% GDP growth, and solid corporate balance sheets. He said that despite short-term market turbulence, recession risks remain low, and their portfolio maintains an equity overweight alongside high-yield exposure. He also pointed out that it is still early in President Trump's second term and too soon to draw definitive conclusions about its impact. He believes that lower interest rates could pave the way for positive fiscal and deregulation policies that have yet to fully materialize. Despite current market fears, he remains optimistic about the economy’s strength and low recession probability.
Hickey weighed in on the uncertainty dominating markets, emphasizing that no one can predict the full impact of tariffs. He referenced Target CEO Brian Cornell’s comments earlier in the day about the lack of certainty regarding tariffs, taxes, rates, and the economy. Hickey remarked that this stew of uncertainty is keeping investors cautious. He noted that intraday rallies, such as the one seen earlier in the day after bouncing off the 200-day moving average, are often short-lived due to unpredictable policy developments. For instance, Trump’s speeches have recently been followed by market declines, adding to investor hesitancy. He also highlighted historical context for pullbacks like the current one: since World War II, there have been 64 instances of a 5% drop from all-time highs in the S&P 500. While not uncommon, he advised caution in the short term due to unpredictable market reactions.
Both experts agreed that uncertainty around tariffs and other policies will continue influencing market behavior in the near term. However, they emphasized different aspects, Camporeale focused on economic strength and strategic positioning within portfolios, while Hickey stressed caution amid ongoing unpredictability in policy-driven market movements.
Methodology
We used the Finviz stock screener to compile a list of the top US stocks that had a forward P/E ratio under 15. We then selected the 10 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q4 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 1000 elite money managers.
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 (COF) – Jim Cramer Called It His Favorite
A smiling face of a customer as they make a deposit at this company's branch.
Capital One Financial Corporation (NYSE:COF) is a financial services holding company that provides a spectrum of banking and credit products to consumers, small businesses, and commercial clients across the US, Canada, and the UK. It delivers through a multi-channel approach that includes digital platforms, branches, and cafes.
Its Domestic Card segment is a major revenue contributor. In Q4 2024, customers spent 7% more using their cards year-over-year. The total amount of money loaned out on these cards also increased by 5%. This growth in spending and loans led to a 9% year-over-year increase in the revenue earned from this segment. The profit margin on these credit cards went up by 0.55%, reaching 18.6%. The percentage of loans that were written off as uncollectible (the charge-off rate) was 6.06%. This figure includes a 0.40% increase due to the end of a previous agreement with Walmart. Without that agreement, the charge-off rate would have been 5.66%, which is still a 0.31% increase.
Domestic Card expenses rose by 13% compared to Q4 2023. This was because the company spent more on everyday operations and advertising. Capital One Financial Corporation (NYSE:COF) spent a total of $1.4 billion on marketing, which is 10% more than before, and most of that extra money went towards promoting the credit cards. The company is spending more on advertising and improving customer perks to keep growing its business.
Ariel Global Fund sees the company's strong performance, which is driven by the potential Discover Financial Services acquisition. It is expected to yield long-term earnings growth through network leverage and enhanced technology focus, alongside favorable industry trends. It stated the following regarding Capital One Financial Corporation (NYSE:COF) in its Q4 2024 investor letter:
“Global financial services company, Capital One Financial Corporation (NYSE:COF) was another top performer during the period. Shares rallied following the U.S. election as investors believe the potential Discover Financial Services (DFS) acquisition is more likely to close. The new administration is expected to be more accommodative of bank mergers and acquisitions. In our view, the deal would produce significant long-term earnings accretion. COF will be able to leverage DFS’ proprietary payments network, enabling direct interaction with merchants and consumers. This closed loop dynamic should lead to higher volumes of credit card conversions boosting its shares. At current levels, we view the long-term outlook to be attractive, given favorable business trends, stabilizing delinquency rates within the credit card industry, upside from the DFS acquisition and COF’s enhanced focus on technology.”
Overall COF ranks 7th on our list of the most undervalued US stocks to buy according to hedge funds. While we acknowledge the potential of COF as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high 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.
