Capital One Financial Corp. (COF), Wells Fargo & Co (WFC) & More: An Overlooked Stock May Be This ‘Hated’ Sector’s Best Bargain

With a price-to-book ratio of 0.9, Capital One Financial Corp. (NYSE:COF)’s shares are currently trading below book value; compare that with the industry standard of close to 3 times book value. Capital One’s trailing 12-month price-to-earnings (P/E) ratio of 11 is almost half of its competitor’s average of 21, and its forward P/E is even cheaper at 9.4.

As for the future, Capital One looks to be in a very strong position. To keep things simple, it may be best to look at the three main business segments — credit cards, consumer banking and commercial banking — separately. Credit cards represent 40% of revenue, consumer banking 40% and commercial banking the remaining 20%.

The company’s credit card segment was bolstered in 2012 when Capital One Financial Corp. (NYSE:COF) acquired HSBC’s $30 billion credit card portfolio. This transaction made Capital One one of the top five credit card issuers in the world.

In 2012 Capital One Financial Corp. (NYSE:COF)’s banking division acquired ING Direct’s (NYSE:ING) entire U.S. operations. The deal added 7 million customers and $83 billion in additional deposits to the banks’ portfolio. The deal also jump-started Capital One’s automobile lending — up an astonishing 24% in 2012 alone.

Finally, the commercial and industrial lending segment is also showing growth — up 13% in 2012.

In spite of its recent acquisitions, Capital One Financial Corp. (NYSE:COF) carries virtually no debt and is gushing free cash flow. In this year’s first quarter, Capital One reported free cash flow of $2.5 billion, nearly double its $1.3 billion in the same period last year.

Risks to Consider: Financial stocks have been surging in part due to the recovery in housing. Although housing prices continue to rise, weakness in the sector would be a drag for banks.

Action to Take –> Capital One is a solid, growing business selling at a bargain price. I think Capital One Financial Corp. (NYSE:COF)’s fortress balance sheet and recent success indicate that this company’s best days are still ahead. I rate it a buy for long-term investors at today’s prices.

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This article was originally written by Chad Tracy and posted on StreetAuthority.