Jim Cramer's Charitable Trust Buys Capital One Shares
Quick Look
- Jim Cramer's Charitable Trust increased its stake in Capital One by buying 65 shares at approximately $193.81, raising its portfolio weight to 3.25%.
- This move is influenced by falling oil prices and a positive analyst report from Baird, which highlights Capital One's attractive valuation and earnings flexibility.
AI-generated summary
Why It Matters
Jim Cramer's Charitable Trust is increasing its investment in Capital One, anticipating benefits from lower oil prices and a positive analyst outlook. The trust views Capital One as undervalued and resilient in potential credit downturns.
We are buying 65 shares of Capital One at roughly $193.81.
Following the trade, Jim Cramer's Charitable Trust will own 675 shares of COF, increasing its weight in the portfolio to about 3.25% from 2.9%.
Oil prices are down about 5% on Monday after the U.S. and Iran agreed on a plan to end the war and reopen the Strait of Hormuz.
We're looking to add to some positions that will benefit from the end of the conflict and drop in energy prices. Capital One is one of them.
Lower prices at the pump should ease concerns about consumer credit, a narrative that has weighed on Capital One shares since the war began.
Adding to our upbeat view of the credit-card issuer was Baird's calling the stock a "Bullish Fresh Pick" on Monday.
The analysts like the risk-reward balance at these levels and believe shares represent one of the best ideas in their coverage.
Valuation is a big reason behind Baird's bullish thesis.
The analysts said Capital One shares trade at just over 7 times their 2027 earnings-per-share estimate, representing a huge 30% to 35% discount to other credit-sensitive financials.
They believe the valuation is too low given the strong returns Capital One generates on its assets and the earnings power expected from the Discover integration once it is fully realized.
We also like Baird's view about Capital One's earnings flexibility.
In the event that credit worsens and Capital One's provisions to cover losses increase 30%, Baird estimates Capital One could still earn about $18.70.
Analysts argued that the market is underappreciating the fact that, in a credit downturn, Capital One would likely slow down its marketing spending.
Baird estimates a 30% reduction in marketing spend could fully offset a 50 basis point increase in credit provisions, leaving earnings per share intact.
Lastly, Baird reiterated one of our longstanding views that Capital One is well-capitalized and has plenty of firepower to repurchase stock.
(Jim Cramer's Charitable Trust is long COF. See here for a full list of the stocks.)
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What to Watch
AI outlook — possibilities, not facts
Capital One shares will benefit from lower oil prices and positive analyst sentiment.
Likely · Short term
Open Questions
- Will the peace plan between the US and Iran hold?
- How will the Discover integration fully impact Capital One's earnings?
