Sometimes unloved stocks are good stocks that have just rubbed investors the wrong way and actually represent great investment opportunities. Quite often, though, unloved stocks are unloved because there is something very wrong with either the stock or the company behind the stock.
In The Motley Fool's CAPS community stocks are rated on a scale of one to five stars based on the ratio of outperform and underperform ratings given to them by CAPS members. Stocks with the worst ratios end up with a one-star rating -- which is the CAPS' equivalent of a flashing red warning beacon.
One of the stocks that has landed that dreaded one-star rating is Capital One Financial (NYSE:COF). With a focus on credit card lending, Capital One has been caught dead in the middle of the credit crisis's crosshairs. In 2008, the company nearly doubled its provision for loan losses versus the prior year, and many investors and analysts believe that more pain is ahead for credit card loans.
To get a better idea of why Capital One is so unloved, let's take a look at how it stacks up against other comparable companies.
|
Company |
TTM Net Profit Margin |
TTM Return on Assets |
Price-to-Book Ratio |
CAPS Rating
|
|---|---|---|---|---|
|
Capital One Financial |
(9.3%) |
(0.4%) |
0.4 |
* |
|
American Express (NYSE:AXP) |
10.4% |
1.8% |
2.4 |
*** |
|
Bank of America (NYSE:BAC) |
12.3% |
0.3% |
0.5 |
*** |
|
Wells Fargo (NYSE:WFC) |
10.9% |
0.4% |
1.6 |
*** |
|
JPMorgan Chase (NYSE:JPM) |
10.6% |
0.2% |
1.0 |
** |
Source: CAPS and Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months.
Capital One hasn't landed at the bottom floor of CAPS for no reason; even the much-maligned Bank of America has put up better numbers over the past year. But to get more specific, let's take a look at why CAPS All-Star martynanasi has been bearish on the stock since the beginning of 2008:
Very large credit card and lender of various sorts. Tend to lend to the sub-prime consumer which is not a good thing in this market. Too many issues with current standards right now to think this stock will outperform the market even though has a P/E less than 7. I am guessing market thinks earnings growth is pretty dull going forward.
Now I'm going to toss the ball in your court. Is Capital One a stock worthy of a rock-bottom rating? Or has the CAPS community overlooked the company's potential? Head over to CAPS and let the 135,000 community members know how you feel.
And if it feels good to jab your thumb down on a stock, you may want to check out Citigroup (NYSE:C) and General Motors (OTC: GMGMQ.PK), both of which have been out of favor among Capital One bears.
Further Foolishness:
