This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Capital One, Discover Are Bargains as Industry Resumes Growth

Stocks in this article: COF DFS AXP ADS JPM C WFC GE

NEW YORK ( TheStreet) -- "We believe resumption of receivables growth, while maintaining strong credit performance could benefit all issuers, particularly those with low valuations which may enable multiple expansion."

Those words from FBR analyst Scott Valentin are music to the ears of investors holding shares of Discover Financial Services (DFS) and Capital One Financial (COF), which trade at significant discounts to other "purer play" credit card lenders.

Credit card lenders report numbers for their portfolio and securitized card loans each month. The "master trust" data for the securitized loans shows a continued significant decline in overall loan balances, as U.S. consumers continue to pay down card balances at a historically elevated rate.

But nearly all of the big card lenders showed year-over-year growth of over 1% for their on-balance-sheet credit card portfolios during October, which Valentin highlighted in a note to clients on Monday. This is a great thing for investors considering how profitable credit card lending can be, especially during a time of stellar loan quality. In addition to Discover and Capital One, this group includes American Express (AXP), Bank of America (BAC) , Citigroup (C) and JPMorgan Chase (JPM).

General Electric (GE) is the largest private label credit card lender, with a portfolio of roughly $36 billion as of Sept. 30. But the company on Friday announced plans to spin off its consumer credit business, in a transaction that will be tax free to current GE shareholders and include an IPO of up to 20% of the equity in the new company. This appears to be a fantastic deal for shareholders, as well as for General Electric, which continues to trim away GE Capital, in order to focus more on its main industrial business. According to KBW analyst Sanjay Sakhrani, The business being spun off had a very strong 4% return on assets during 2012, with a profit of $2.2 billion on about $53 billion in total assets.

"Given the size and private label focus of GE's current operations, we feel that the implications are fairly limited to certain names in our coverage universe, namely Capital One and on a smaller scale Alliance Data (ADS)," Sakhrani wrote in client note on Friday. "Freeing up" the consumer finance unit could unlock significant value for investors. Then again, the GE consumer finance unit's "bank funding advantage could be moderated as the business would not likely have the same access to funding as it currently has," Sakhrani wrote. So the new company may be operating on a more even playing field than it currently enjoys. It will be fascinating to see how aggressive the new company's management will be after GE completes the spinoff during 2014.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,778.15 +421.28 2.43%
S&P 500 2,061.23 +48.34 2.40%
NASDAQ 4,748.3960 +104.0840 2.24%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs