What makes Capital One Financial Corporation (COF) an interesting investment bet?

Investment management firm, Davis Advisers, has released its Davis Financial Fund Annual Investor Letter for 2022. A copy of the same can be downloaded here. In 2022, the fund declined −8.91%, slightly outperforming the S&P 500 financial index, which returned −10.53%. Investments in property and casualty (P&C) insurance, foreign banks and Berkshire Hathaway were the main contributors, while US bank and consumer credit holdings detracted from performance. Also, please check the fund’s top five holdings to know its top picks in 2022.

Davis Financial Fund highlighted stocks like Capital One Financial Corporation (NYSE:COF) in its 2022 Annual Investor Letter.Headquartered in McLean, Virginia, Capital One Financial Corporation (NYSE:COF) is a financial services company. On March 10, 2023, shares of Capital One Financial Corporation (NYSE:COF) closed at $98.19 per share. One month return of Capital One Financial Corporation (NYSE:COF) was -16.34% and its stock lost 26.54% of its value in last 52 weeks. Capital One Financial Corporation (NYSE:COF) has a market capitalization of $37.418 billion.

Davis Financial Fund made the following comment about Capital One Financial Corporation (NYSE:COF) in its 2022 Annual Investor Letter:

“Let’s look at our largest holding in the Davis Financial Fund, Capital One Financial Corporation (NYSE:COF). The company’s two primary consumer-facing credit businesses are credit cards and auto. Credit quality trends in both lines have followed a similar path, as seen in Figure 4. Delinquencies and charge-offs declined in 2020-2021 from pre-COVID-19 levels, but recently they have started to experience a spike in delinquencies (which naturally would precede any increase in charges). So the trajectory suggests that the credit environment is deteriorating from what it was, but the absolute level of the trend remains favorable relative to the longer-term past. As Capital One CEO Rich Fairbank recently noted, “It would be very abnormal if we don’t see normalization.”

We try to avoid making predictions about macroeconomic variables, although given the Federal Reserve’s desire to rein in inflation through tighter monetary policy, a recession in the next year or so remains the most likely scenario. Regardless of exactly how the next six to eighteen months play out, we have always assumed that our companies will have to experience a recession at some point during our holding period.

The important question is how well prepared are companies to navigate it? Their first line of defense is the loan loss allowance that is already booked. Accounting rules require the company to make a “life of the loan” estimate of total credit losses, so their existing allowance now reflects a consensus economic outlook that calls for a slowing economy and a gradual rise in the unemployment rate. The actual path taken by the economy may, of course, deviate unfavorably from the current outlook, but the point is that bank reserves already include a down payment on reversion to the mean of economic trends…” (Click here to read full text )

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Capital One Financial Corporation (NYSE:COF) is not on our list of the 30 most popular hedge fund stocks. According to our database, 55 hedge fund portfolios held Capital One Financial Corporation (NYSE:COF) at the end of the fourth quarter, up from 52 in the previous quarter.

We discussed Capital One Financial Corporation (NYSE:COF) in another article and shared Ken Fisher’s new buys/additions. In addition, please see our Q4 2022 Hedge Fund Investor Letters page for more letters from hedge funds and other leading investors.

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Disclosure: None. This article was originally published on Insider Monkey.

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