I've got a high opinion of many of the five-star-rated financial services companies in our Motley Fool CAPS investor service, including Barclays
Instead, I'm nominating Capital One Financial
Credit cards remain the heart of Capital One's business. The company has long focused on the subprime portion of the market, but in the last few years, it's begun targeting the prime borrower market as well. This puts it in competition with Citigroup
"I think this company has one of the best run credit card programs. They are more selective in who they give cards to, give a decent interest rate to the credit worthy, and have a rewards program that is nice but not a huge giveaway."
"Capital One is a company that is constantly misunderstood by the market. Place a moderate P/E of 12 based on 2006 earnings, and the stock should be worth at least $95 today. Factor in the fact that management at COF is superb and the company has consistently grown its earnings >15% every year of its existence, and its easy to justify a $100+ stock price in the near future."
Instead of the P/E method used above, I used a discounted cash flow analysis to value Capital One, and I'd conservatively peg the company between $88 and $95 a share. That depends on just how robust the company's growth will be in the next five to 10 years. The other companies I mentioned are great, and they should all do well. But investing is a blend of value and growth, which makes Capital One the only company among those I've listed here to earn a spot on my personal CAPS scorecard.
What do you think? Cast your vote in Motley Fool CAPS by tagging Capital One as an underperformer or an outperformer. Next week, we'll announce the community's pick for the best financial company for 2007, based on your responses.
At the time of publication, Nathan Parmelee had no financial interest in any of the companies mentioned. He was ranked 56th out of 20,856 CAPS investors. The Motley Fool has an ironclad disclosure policy.