Trade of the Day: Bank on a Double-Digit Return in COF Stock

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Capital One Financial Corp. (COF) — This large-cap financial services company provides a wide range of financial products to consumers, small businesses and commercial clients.

Loan growth and an increase in net interest income, which accounts for 80% of the company’s revenues, should help boost revenues and earnings this year. Capital IQ forecasts 2.3% loan growth, which is slower than 2014’s 5.6% increase, but still strong. Net interest income is expected to increase by 4.7% in 2015, following a decline of 1.6% in 2014.

Capital One has delivered volatile results over the past five years, which Capital IQ notes has been due to the economic climate, with a more weary approach to debt, and large acquisitions. However, its analysts expect earnings to become more predictable.

Improving consumer confidence and employment, along with an anticipated interest rate increase by the Federal Reserve, should benefit the company and COF stock. Capital IQ also predicts management will make returning capital to shareholders a top priority over the next two years. Their 12-month target of $101 is less than 13 times 2015 estimated EPS of $7.88. Earnings are forecast to jump to $8.04 in 2016.

Technically COF stock completed a deep “V” breakout in late May, sustained in June by steady volume and a 50-day moving average with a 45-degree angle. The breakout was supported by several “step ups” and a golden cross, which launched COF stock into a major bull market advance in early May.

On Thursday, MACD flashed a new buy signal as shares jumped to a new all-time high.

My four-month target for COF stock is $102. If we are able to execute my buy under price of $90, we could see a return of 13%, plus dividends. Investors may also wish to hold COF stock in their portfolio as a high-quality representative in the financial services group.

COF Stock Chart
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