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Credit Card Stocks on Fire in 2012!! Capitol One Financial(COF) Options?! By: Tim Bolger

Capitol One Financial (COF) stock has been on fire in 2012 and is one of my top stock picks in the credit card/financial services space for this year. Read more on the bio of COF courtesy of Yahoo Finance: Capital One Financial Corporation operates as the bank holding company for the Capital One Bank (USA), National Association (COBNA), and Capital One, National Association (CONA), which provide various financial products and services in the United States, the United Kingdom, and Canada. It offers consumer and small business credit card lending, national closed end installment lending, and the international credit card lending services. The company also provides various non-interest bearing and interest-bearing deposits, including demand deposits, money market deposits, negotiable order of withdrawal accounts, savings accounts, certificates of deposit, and other consumer time deposits. Its loan portfolio comprises credit card loans; consumer loans, such as auto, home, and retail banking loans; and commercial loans, including commercial and multifamily real estate, middle market, specialty lending, and small-ticket commercial real estate loans. In addition, the company provides mortgage banking, treasury management, and depository services. It primarily serves consumers, small businesses, and commercial clients through branches, the Internet, and other distribution channels. The company was founded in 1993 and is headquartered in McLean, Virginia.

Why do I love Capital One Financial (COF)?? This stock has been on a tear over the last couple of years and still looks very attractive from a fundamental valuation perspective. Currently, COF trades at $56.01(2;03p.m. EST), with a trailing Price to Earnings ratio of 8.23 and has a Price to Book value of .87. The book value of COF is $65.17 a share. In comparison to Visa (V), currently trading at $118.06 (2:04 p.m. EST), which has a trailing Price to Earnings ratio of 20.90 and has a Price to Book value of 2.94. The book value of V is $40.61 a share and is trading at a significant premium based on the Price to Book metric.  However, V is still an amazing growth story and it’s extremely important to note that V has zero exposure to losses from consumer defaults on credit card debt. This is in contrast to COF, which has great exposure to consumer defaults, because it lends alot of its own capital. Fortunately, for COF, consumer defaults have been declining as the global economy continues to improve and that has helped propel the stock even higher.

I love Visa (V) stock as well and would be a buyer of this stock under $110 per share. I believe V may run to $150 a share in 2012 and is truly another amazing success story in the San Francisco Bay Area. From a valuation perspective, I am a bigger proponent of owning shares of COF right now. COF could run to $80 in the next twelve months and next stop may be $100 per share…Legendary Hedge Fund Manager and Billonaire investor: John Paulson of Paulson & Company Inc., is one of the largest shareholders of COF, with his managed funds owning 9,420,000 shares of COF.

Capitol One Financial (COF) reports earnings on April 19, 2012. Analysts are anticipating a great quarterly report from COF. Will the company blow past Analyst earnings estimates?? And, what is the Options play on COF ahead of earnings? As you can see from the COF data below, courtesy of Yahoo Finance, COF has beat analyst expectations in three of their last four quarterly earnings reports. Clearly, the weakest financial report was their most recent one in December of 2011, in which they missed Analyst earnings expectations by 43.60%. Ouch! Yes, that was a terrible earnings miss, but I think this upcoming quarterly earnings report is going to be stellar and only time will tell the real story…Visa reported blow out numbers and I think COF earnings will thrill investors as well!!

Earnings History Mar 11 Jun 11 Sep 11 Dec 11
EPS Est 1.55 1.71 1.68 1.56
EPS Actual 2.21 1.97 1.77 0.88
Difference 0.66 0.26 0.09 -0.68
Surprise % 42.60% 15.20% 5.40% -43.60%

 

Trade#1: I would consider buying the Capitol One Financial(COF) $57.50 strike Call Options for $1.00 with an April 20, 2012 expiration. Attached are the COF Options chains with an April 20, 2012 expiration date courtesy of Yahoo Finance:http://finance.yahoo.com/q/op?s=COF+Options. If I buy 10 Call Option contracts, it will cost me $1,000 plus trading fees to get long exposure to 1,000 shares of COF at $57.50. I think that COF stock could trade to $65 per share if the company beats Analyst earnings expectations next month and gives an upbeat earnings guidance for the full year of 2012. Additionally, any positive comments by management on the conference call about a continued decline in consumer credit card defaults, would be another catalyst to propel COF stock much higher. If COF trades to $65 a share by the expiration of these Call Options, this trade will be worth at least $7,500 ($750 per contract x 10 contracts= $7,500 minus trading fees). Good luck COF bulls and remember that Options trading is very risky and to always consult your investment advisor before buying/selling any equity securities and/or Options contracts.

 

Trade#2: For the longer term bull in COF, I would consider buying the COF $57.50 strike Call Options for $3.50 per contract with a Sept 21, 2012 expiration date. Attached are the COF Options chains with a Sept 21, 2012 expiration date courtesy of Yahoo Finance: http://finance.yahoo.com/q/op?s=COF&m=2012-09. I can buy 10 Call Option contracts for $3,500, in which I will be paying a premimum for more time value to allow COF shares to potentially climb much higher over the next several months. If the shares of COF trade to $70 a share over the next several months, this trade will be worth at least $12,500.  Good luck to all of the COF Bulls and stay tuned to http://www.Optionshoney.com for more monster Options trades!

Check out the Technical Chart on Capitol One Financial below (COF) courtesy of FinViz:

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