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Stock Strategist

Capital One Deserves More Respect

We think investors are overreacting to the bank's higher charge-offs.

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We believe  Capital One Financial (COF) is one of the best-run banks and does not receive the respect it deserves. Under founder Richard Fairbank’s leadership, the bank has grown from offering only credit cards into a diversified lender specializing in three businesses: credit cards (42% of loans), consumer lending (31% of loans), and commercial banking (28% of loans). Although credit cards are not as important as before, this segment still accounts for approximately 59% of income.

While much of its success can be attributed to an unrelenting focus on operations and organic growth, Capital One has periodically created significant value by acquiring businesses opportunistically and, most important, at attractive prices. We believe the acquisitions of HSBC’s cobranded card business and ING Direct exemplify the company’s aim to acquire good strategic assets cheaply. Using its patient acquisition philosophy, Capital One has become a stronger, diversified consumer lender.

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Colin Plunkett does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.