4. Discover Financial Services

DFS Chart DFS data by YCharts

Shares of Discover Financial Services ( DFS) closed at $51.13 Friday, returning 33% this year, following a 63% return during 2012. The shares trade for 9.8 times the consensus 2015 EPS estimate of $5.21. The consensus 2014 EPS estimate is $4.96.

Discover has been one of the strongest performers among U.S. bank holding companies for several years. The company's second-quarter return on tangible common equity was 25.58%, following ROTCE of 26.82% in 2012 and 28.55% during 2011.

Several major credit card lenders have been reporting declines in total outstanding credit card loan balances, as U.S. consumers continue to deleverage. Discover has bucked this trend. The company's average loans grew 7% year over year to $60.8 billion during the second quarter, with 5% growth in credit card loan balances, 5% growth in private student loans to $7.9 billion, and 21% in personal loans to $3.5 billion.

Oppenheimer analyst Ben Chittenden rates Discover "outperform," with a 12-18 month price target of $57, and in a note clients on July 24 wrote that the company's second-quarter net interest margin of 9.44%, rising from 9.39% the previous quarter, and its loan growth "bettered expectations."

The credit card loan losses are at cyclical lows and still improving for Discover. "This combination of better loan growth and continued lower than anticipated credit costs drives much of the reason we think Street expectations will move higher over time and why we think the stock will outperform," the analyst wrote.

Interested in more on Discover Financial Services? See TheStreet Ratings' report card for this stock.

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