We recently compiled a list of the 10 Best American Bank Stocks To Buy Now.In this article, we are going to take a look at where Capital One Financial Corporation (NYSE:COF) stands against the other American bank stocks.
2024 was a memorable year for America’s banking giants. According to a recent report in the Financial Times, the seven largest banks in the country represented 56% of the industry’s profits during the first nine months of the year, up from 48% during the same period in 2023.
The banking sector is also experiencing improved capitalization. In November, the Federal Reserve Board found that 99% of the country’s banks reported capital above regulatory requirements. Moreover, the Federal Deposit Insurance Corporation (FDIC) noted a 3.5% increase in equity capital in Q3 2024, reflecting the upward trend in capitalization.
Globally, credit rating agency Moody’s upgraded the overall outlook for the industry from negative to stable in December for the first time since 2023, citing interest rate cuts and monetary adjustments being made by the G-20 countries. The Federal Reserve announced three cuts last year, lowering the central bank’s target interest rate to 4.25% and 4.5%.
Trump’s return to the White House has also raised optimism about lax regulations in the financial sector, which analysts believe can spur dealmaking activity in the banking sector. Reduced oversight and a business-friendly environment are also likely to boost revenue and loan growth, and subsequently improve banks’ bottom line.
The U.S. president has also repeatedly demanded further reductions to the interest rate. Here is what he said at the World Economic Forum in Davos on January 23.
With oil prices going down, I'll demand that interest rates drop immediately, and likewise they should be dropping all over the world.
While the general outlook for the banking industry looks promising for 2025, analysts also warn of the potential risks associated with ongoing geopolitical conflicts, which can have adverse effects on the global economy. Increasing trade tensions and protectionist policies can also hurt investment inflows.
On January 31, the White House announced that President Trump would move ahead with his planned tariffs on Canada, China, and Mexico, starting February 1. The 78-year-old has also threatened to impose tariffs on the EU, citing the bloc’s treatment of the U.S.
"Am I going to impose tariffs on the European Union? You want the truthful answer or shall I give you a political answer? Absolutely. The European Union has treated us so terribly."
Methodology
For this article, we sampled stocks from ETFs with exposure to American banking companies and our previous articles on the sector. 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 American bank stocks to buy now 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).
Is Capital One Financial Corporation (COF) Among Billionaire Louis Bacon’s Long-Term Stock Picks?
A smiling face of a customer as they make a deposit at this company's branch.
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.
On December 19, COF announced that it had received approval from the Delaware State Bank Commissioner to complete its acquisition of Discover Financial Services and its subsidiary, Discover Bank. The two companies had entered into a definitive agreement in February 2024 for the acquisition of Discover for $35.3 billion. The transaction is expected to close in early 2025.
The move has bolstered investor confidence in Capital One Financial Corporation (NYSE:COF). Amalthea Fund stated the following regarding the acquisition 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 solid financial performance is another factor driving the bullish sentiment. During Q4 2024, the company reported a total net revenue of $10.2 billion. Net income for the quarter stood at $1.1 billion, or $2.67 per diluted common share, up from $706 million, or $1.67 per diluted common share during the same period last year.
Wall Street analysts have a consensus Buy rating for COF. Investor sentiment is steadily improving. 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 Q2. Capital One is among the best American stocks to buy now.
Overall COF ranks 6th on our list of the best American bank stocks to buy now. While we acknowledge the potential of COF as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. 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.
