Orenbuch covers specialty finance for the financial services team at
Donaldson Lufkin & Jenrette
. Before joining DLJ, he covered credit card issuers and regional banks at
Sanford C. Bernstein
Industry Outlook and Style
Citing stable credit quality, improving margins, less competition and the
Federal Reserve easing its tightening of interest rates, Moshe Orenbuch thinks consumer finance stocks will continue to perform well. While the analyst lists company growth, industry competitiveness and credit quality as the key factors in judging both consumer lenders and credit card companies, he says that the Fed's actions can have a strong impact on stock prices, whatever a company's underlying fundamentals.
Even though most companies' earnings weren't interrupted by the Fed's tightening over the past year, Orenbuch notes, the moves dampened valuations of some stocks. With interest rates now expected to remain stable, the analyst anticipates better performance from the group. He says, "Given the interplay between their yields and their costs of funds, we thought we'd see improvements in margins in the third quarter, and we still think that."
is Orenbuch's top pick in the group, but he also mentions
( PVN). (DLJ is a market maker in all three securities and has done investment banking for Household.) "Providian is a more leveraged play on a lot of the same trends that Capital One is a beneficiary of, meaning it's got a higher growth rate and a slightly lower multiple."
But the analyst says he's less enthusiastic about a company like
, which has a slower growth rate and a higher valuation.
Favorite stock for next 12 months:
"Capital One is growing its account base very rapidly. It's in the process of broadening its product offering, so it kind of leverages its account base. It's been investing at a very high level, so earnings are probably understated -- that allows it to keep growing at that rapid pace. It spent the most proportionally on marketing of any of the companies that I follow, so it reinvests the most back into the business. And it also has among the best credit quality of the major players."
Rate Their Stock Picks:
Which stock do you like best?
Gordon: Freddie Mac
Orenbuch: Capital One