10 Most Undervalued US Stocks to Buy According to Hedge Funds

7. Capital One Financial Corp. (NYSE:COF)

Forward P/E Ratio as of March 6: 11.68

Number of Hedge Fund Holders: 89

Capital One Financial Corp. (NYSE:COF) is a financial services holding company that provides a spectrum of banking and credit products to consumers, small businesses, and commercial clients across the US, Canada, and the UK. It delivers through a multi-channel approach that includes digital platforms, branches, and cafes.

Its Domestic Card segment is a major revenue contributor. In Q4 2024, customers spent 7% more using their cards year-over-year. The total amount of money loaned out on these cards also increased by 5%. This growth in spending and loans led to a 9% year-over-year increase in the revenue earned from this segment. The profit margin on these credit cards went up by 0.55%, reaching 18.6%. The percentage of loans that were written off as uncollectible (the charge-off rate) was 6.06%. This figure includes a 0.40% increase due to the end of a previous agreement with Walmart. Without that agreement, the charge-off rate would have been 5.66%, which is still a 0.31% increase.

Domestic Card expenses rose by 13% compared to Q4 2023. This was because the company spent more on everyday operations and advertising. Capital One Financial Corp. (NYSE:COF) spent a total of $1.4 billion on marketing, which is 10% more than before, and most of that extra money went towards promoting the credit cards. The company is spending more on advertising and improving customer perks to keep growing its business.

Ariel Global Fund sees the company’s strong performance, which is driven by the potential Discover Financial Services acquisition. It is expected to yield long-term earnings growth through network leverage and enhanced technology focus, alongside favorable industry trends. It stated the following regarding Capital One Financial Corp. (NYSE:COF) in its Q4 2024 investor letter:

“Global financial services company, Capital One Financial Corporation (NYSE:COF) was another top performer during the period. Shares rallied following the U.S. election as investors believe the potential Discover Financial Services (DFS) acquisition is more likely to close. The new administration is expected to be more accommodative of bank mergers and acquisitions. In our view, the deal would produce significant long-term earnings accretion. COF will be able to leverage DFS’ proprietary payments network, enabling direct interaction with merchants and consumers. This closed loop dynamic should lead to higher volumes of credit card conversions boosting its shares. At current levels, we view the long-term outlook to be attractive, given favorable business trends, stabilizing delinquency rates within the credit card industry, upside from the DFS acquisition and COF’s enhanced focus on technology.”