We purchase 65 shares of Capital One at approximately $193.81. Following the transaction, the Jim Cramer Charitable Trust will own 675 shares of COF, increasing its weight in the portfolio from 2.9% to approximately 3.25%. Oil prices fell about 5% on Monday after the United States and Iran agreed on a plan to end the war and reopen the Strait of Hormuz. We would like to add some positions that will benefit from the end of conflict and lower energy prices. Capital One is one of them. The drop in stock prices will ease concerns about consumer confidence that have weighed on Capital One stock since the war began. Baird’s call of the stock a “bullish fresh pick” on Monday also added to our optimism for the credit card issuer. Analysts like the balance of risk and reward at these levels and believe the stock represents one of the best ideas within their coverage. Valuation is a big reason behind Baird’s bullish thesis. Analysts said Capital One stock is trading at more than seven times expected 2027 earnings per share, representing a deep discount of 30% to 35% compared to other credit-sensitive financial companies. They believe the valuation is too low given the high returns Capital One generates from its assets and the expected earning power once the Discover integration is fully realized. I also like Baird’s take on Capital One’s revenue flexibility. Even if Capital One’s loss reserves were to increase by 30% due to credit deterioration, Baird estimates that Capital One could still earn about $18.70 in profit. Analysts argued that the market was underestimating the fact that Capital One would likely curb marketing spending if credit weakened. Baird estimates that a 30% reduction in marketing spending could fully offset the 50 basis point increase in credit provisions and maintain earnings per share. Finally, Mr. Baird reiterated one of the company’s long-held views: Capital One is well capitalized and has sufficient capabilities to repurchase stock. (Jim Cramer’s Charitable Trust has a long COF. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
