Capital One's Shares Are Still Cheap

NEW YORK ( TheStreet) -- Capital One Financial ( COF) is among the cheapest big bank stocks out there and the second half of 2012 looks to be relatively clean following a rocky second quarter.

Back in December I called Capital One the top bank stock pick for 2012, and the shares returned 34% through Tuesday's close at $56.47, which beats three of the "big four" U.S. banks, with the exception being Bank of America ( BAC), which returned 48% year-to-date, closing at $8.19 on Tuesday.

Rounding out the big four, shares of JPMorgan Chase ( JPM) returned 17% year-to-date, to close at $38.04 on Tuesday, while Citigroup ( C) returned 17% to close at $30.73, and Wells Fargo ( WFC) returned 27%, closing Tuesday at $34.38.

Of course, Bank of America's strong year-to-date performance follows a 58% decline during 2011, when Capital One had a flat return, that compared rather well with a 25% decline for the KBW Bank Index ( I:BKX). The index was up 21% year-to-date, through Tuesday's close at 47.47, with all but two of the 24 index components showing year-to-date gains. Citigroup's shares have been recovering from a 44% drop in 2011.

JPMorgan has bounced back from a 20% decline last year, although the shares are down 7% since May 10, when CEO James Dimon estimated $2 billion in trading losses from hedging activity by the company's Chief Investment Office. While the CIO's second-quarter trading losses ended up totaling $4.4 billion, JPMorgan reported second-quarter earnings of $5 billion. The company now expects to restart its share repurchase program in 2013.

Wells Fargo fared relatively well during 20111, with shares declining 10%, and is among the best earnings performers among large U.S. banks, with returns on average assets ranging between 1.27% and 1.40% over the past four quarters, according to Thomson Reuters Bank Insight.

Looking at current valuations, Capital One is still one of the cheapest of the large banks, relative to earnings estimates. The shares trade for 8.2 times the consensus 2013 earnings estimate of $6.92, among analysts polled by Thomson Reuters. Among the 24 components of the KBW Bank Index, only two names have lower forward price-to-earnings ratios. Citigroup trades for 6.8 times the consensus 2013 EPS estimate of $4.54, while JPMorgan Chase trades for 7.3 times the consensus 2013 EPS estimate of $5.23.

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