With 2011 nearly in the books, it's time to reflect on what has transpired this year and which companies could be facing business-altering decisions in 2012. On today's plate we have Capital One Financial
But before we dig too deeply into what 2012 may have to offer, let's get a quick snapshot of how 2011 treated shareholders:
|Cash/Debt||$8.5 billion / $35.3 billion|
|Projected 5-Year Growth Rate||7.5%|
Source: Yahoo! Finance.
Despite it being a relatively unkind year for financials, Capital One held up pretty well. Compared to large money center banks like Citigroup
What to expect
Because of Capital One's reliance on its credit division for roughly 80% of its revenue, credit card delinquencies and the health of the housing market are likely to take the stage in driving the company's stock price. Just yesterday, new data showed that credit-card delinquencies rose in November by 17 basis points to 5.38%. Although delinquencies remains near historic lows, with such a great reliance on its customers' ability to pay back loans, Capital One shareholders have to view this news with at least some worry.
The continued disaster that is the housing market also indirectly plays a role in the health of Capital One. Many housing stocks, like PulteGroup
You might feel it's a surprise that the company is trading for what would seem like a minuscule 5.7 times trailing-12-month earnings. But when you factor in the instability of Europe's banking system and the likelihood that a myriad of austerity measures across Europe could spur a global recession in 2012, the valuation seems considerably fairer -- at least to me.
Capital One's success or failure is going to come down to whether or not Capital One's cardholders continue to make their payments in lieu of a poor housing market and a shaky macroeconomic picture. To me there seems to be too much worry built into the stock even at just seven times forward earnings, and that's the primary reason I'm maintaining my underperform rating on CAPS. What's your take on Capital One for 2012?
Share your thoughts in the comments section below and consider adding Capital One Financial to your free and personalized watchlist to keep up on the latest news with the company.
Also, if you're looking for one more great idea to start the new year, consider grabbing yourself a copy of our latest special report, "The Motley Fool's Top Stock for 2012." This report is completely free to you and highlights a company that our analysts have dubbed the "Costco of Latin America."
Fool contributor Sean Williams owns shares of Bank of America, but has no material interest in any other companies mentioned in this article. He has way too many points saved up on his credit card. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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