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Capital One: Is It In Your Portfolio?


The eighth-largest bank holding company in the U.S., available at a 25% discount to book value.

It has highly diversified operations, carrying a 2.31% annual dividend yield.

Downside risks remain, but the present valuation affords some margin of safety.

It's a credit card provider, no it's a bank, no it's an insurer! Capital One Financial Corp. (NYSE: COF) is now all of those things and more.

The former monoline, meaning almost all of its business was formerly in consumer credit cards, built up its presence in the late '90s primarily by catering to sub-prime consumers, and thereafter entering retail banking after the turn of the century with its 2005 purchase of Hibernia National Bank - which started a succession of takeovers that included ING Direct for $9 billion in 2012.

All told, the bank holding company has come a long way in a relatively short period of time and is now the eighth-largest in the U.S. as of year-end 2015, with over $273 billion in total assets.

Along with the many positives of great size such as unlimited access to capital, some of the very best talent in the world, and diversification also comes plenty of negatives to bear in mind which often afflict lumbering giants, such as:

  • Bureaucracy, inefficiency, and complacency
  • Scarce opportunities for meaningful organic growth
  • Little real ownership among company management and directors

All of the above can mean a business's best days are behind it. But interestingly, whether by chance, design, or a bit of both, Capital One has at least managed to avoid some of these common pitfalls thus far.

Notably, its original CEO after its...