We recently compiled a list of the 10 Best Credit Card Stocks to Buy Now. In this article, we are going to take a look at where Discover Financial Services (NYSE:DFS) stands against the other credit card stocks.

The market for credit card issuance services has expanded significantly over the last several years. At a CAGR of 9.2%, it will grow from $478.09 billion in 2023 to $522.22 billion in 2024, according to the Business Research Company. Over the coming years, a significant expansion in the market size for credit card issuance services is anticipated. At a CAGR of 8.3%, it will increase to $717.7 billion in 2028, as per the research. Contactless payment usage, data security concerns, cryptocurrency emergence, embedded finance, customization, and personalization are all factors contributing to the growth in the projection period.

The credit card market is still changing, mirroring changes in customer preferences and general economic conditions. According to the Q4 2023 Quarterly Credit Industry Insights Report (CIIR), the average credit card debt per borrower at the end of 2023 was $6,360, a 10% rise YoY. This resulted in a total of $1.13 trillion in credit card debt in the United States the same year. Moreover, the average amount owed by households in the 90th percentile is $11,210, with higher-income households often having larger loads.

According to TransUnion, credit card usage continues to rise, with 167.2 million users expected by mid-2023, representing a substantial rise over the last three years. Furthermore, according to the Federal Reserve Bank of San Francisco, credit cards accounted for 31% of all payments in 2022, although less than 10% of Americans typically utilized cash, according to a December 2023 Forbes Advisor survey.

As per the Federal Reserve Board, credit card delinquency rates have been rising gradually and will reach 3.1% by the end of 2023, the highest level since 2011. Additionally, charge-offs rose in Q2 2024 from 4.16% to 4.38%, a record high of 12.5 years that hasn’t been seen since Q4 2011. Meanwhile, according to Forbes Advisor, the average credit card interest rate in March 2024 was 27.89%, putting financial strain on people with balances.

In the future, digital payment methods are expected to gain popularity; according to a survey conducted in August 2023, more than half of customers preferred digital wallets over traditional cards. This change shows that credit card companies will continue to innovate, even as concerns about interest rates and debt levels persist.

Overall, as we have also mentioned in our article, “7 Best American Bank Stocks To Buy According to Hedge Funds,” the U.S. market for digital banking platforms was estimated at $1.04 billion in 2024 and is projected to grow at a CAGR of 9.63% to reach $2.04 billion by 2031.

Story continues

Looking forward, according to a report, credit card spending is predicted to increase in the mid-single digits by 2024, while balances will fall to the mid-to-high single digits after a substantial rise since 2022. If labor markets are steady, credit performance measures are expected to decline during 2024 and stabilize by early 2025. Despite lower inflation, key problems include resumed student debt payments, high interest rates, and growing living costs.

Yanni Koulouriotis, CFA, Vice President – Global FIG stated:

Methodology:

We sifted through holdings of credit card ETFs and online rankings to form an initial list of 20 credit card stocks. Then we selected the 10 stocks that were the most popular among institutional investors. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024. We have used the stock’s market cap as a tie-breaker in case two or more stocks have the same number of hedge funds invested.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)

A business professional in a suit swiping their credit card at the store.

Discover Financial Services (NYSE:DFS)

Number of Hedge Fund Investors: 68 

Market Cap as of September 9: 32.31 billion 

The American bank Discover Financial Services (NYSE:DFS) operates in two different business segments: payment services and direct banking. It is also one of the largest card issuers in the USA. As one of the best credit card stocks to buy, the company produces both credit and debit cards, together with other consumer banking products.

Moreover, it runs the Diners Club, Pulse, and Discover networks. Based on total purchase volume, the Discover network ranks as the fourth-biggest payment network in the US, while Pulse is among the biggest ATM networks in the whole country.

Among its rivals, Discover has continuously produced returns on equity that are among the highest. The company showed resilience in Q2 2024 when it achieved 70% YoY growth in net income to $1.5 billion, mostly from the sale of its portfolio of private student loans and a successful settlement of lawsuits.

Capital One stated earlier this year that it will acquire DFS for $35.3 billion. Consumers may be impacted by the transaction in the future, although the agreement is not anticipated to be finished until late this year or early 2025. The companies are currently seeking permission from authorities and shareholders, and the proposal has already drawn attention from legislators across the political spectrum.

Despite the strong earnings from the American bank, analysts are still fixated on the possible deal. Due to increased competition in the Visa and MasterCard-dominated payment processing market, financial experts feel that the merger could benefit both Capital One and Discover Financial Services (NYSE:DFS). Since issuers would have to compete by providing more alluring credit card advantages, this increased competition may result in improved incentives and rewards for customers.

Barclays maintained its Equal Weight rating on the shares after the Q2 report 2024 and raised the company’s price target on Discover to $137 from $135. In a research note, the analyst informs investors that the company posted a strong beat and that credit is on pace.

Glenn Greenberg’s Brave Warrior Capital is the largest shareholder in the company, with 3,460,972 shares worth $452.73 million.

Overall DFS ranks 8th on our list of the best credit card stocks to buy. While we acknowledge the potential of DFS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than DFS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.

Disclosure: None. This article is originally published at Insider Monkey.

In their bids to win the 2024 election, former President Donald Trump has promised to “drill, baby, drill” to lower energy prices, while Vice President Kamala Harris has assured she won’t ban fracking.

Those promises may not matter much in the near term. Energy prices are poised to drop, regardless of who wins, says one industry watcher.

“Whoever gets elected in November is going to be very fortunate in that they are going to be dealing with some of the most serious energy deflation … since 2020,” Tom Kloza, OPIS Global head of energy analysis, told Yahoo Finance, referring to the start of the pandemic lockdowns four years ago when US crude prices slumped as travel demand collapsed.

This past week was one of the year’s most volatile for the energy markets as oil touched its lowest level since 2021 before ticking higher on Wednesday. Year to date, West Texas Intermediate (CL=F) is down about 2%, while Brent (BZ=F), the international benchmark, is down more than 4%.

Gasoline prices have also fallen to their lowest level since February, with the national average at $3.24 per gallon, according to AAA.

Prices are expected to go lower as the industry soon switches to a cheaper winter-grade gasoline. Analysts predict the national average will dip below $3 per gallon in the coming weeks barring an unforeseen event.

“These sub-$3 prices are sure to boost consumer sentiment going into the fall,” GasBuddy head of petroleum analysis Patrick De Haan told Yahoo Finance.

Weak demand out of China, the biggest importer of oil, has been the main driver of declining crude prices. The country has been battling a housing crisis while shifting toward electric vehicles and more natural gas consumption.

Cracks in the US economy and Europe have also weighed on the markets, keeping some speculators notably at bay.

“What happened this summer and what continues to happen is that you do not have speculators buying futures and options contracts anymore,” said Kloza. “The fact that we didn’t see more speculative money coming into the market … that might represent a real sea change for oil.”

“Right now, financial participation in oil markets is probably as low as it’s been since oil became an asset class,” said Kloza.

The fall in oil prices has been so rapid that Wall Street analysts have been forced to revise down their forecasts. On Monday, Morgan Stanley cut its Brent price target for the second time in a matter of weeks, citing risks of “considerable demand weakness.”

The analysts forecast Brent will average $75 per barrel in the fourth quarter of this year, $5 lower than the prior downwardly revised outlook of $80 issued in late August.

Story continues

Oil demand growth forecasts have also come down. The International Energy Agency cut its outlook for 2024, citing Chinese oil demand “firmly in contraction.”

The revision came the same week oil alliance OPEC slightly trimmed its own oil demand forecast. Despite the revision, OPEC’s expectations are still near double other industry estimates.

The oil alliance spearheaded by Saudi Arabia has been eager to bring back more of its supply by unwinding some of its production cuts, which have helped keep a floor on prices.

However, the cartel recently delayed the reintroduction of barrels initially slated for October given the slump in oil. The postponement didn’t do much to boost prices.

“OPEC+ still has a significant amount of oil that is just waiting to return to the market. And I think that’s the concern — is there really that demand to really satisfy and absorb that increased oil that is going to come back to the market sometime soon?” Tortoise senior portfolio manager Rob Thummel told Yahoo Finance on Wednesday.

In a nod to centrists, during Tuesday’s event Harris underscored record production in the US, the largest oil and gas producer in the world.

“We have invested a trillion dollars in a clean energy economy while we have also increased domestic gas production to historic levels,” said Harris.

Meanwhile, at rallies, Trump has promised to produce even more oil in order to cut energy prices in half and bring gasoline below $2 per gallon, though analysts expect producers to keep his “drill, baby, drill” vow in check if prices go too low.

On average, companies need the price of US crude to be at least $64 per barrel in order to profitably drill a new well, and $39 for existing ones, according to the Dallas Federal Reserve survey.

With WTI trading near $69, production is expected to continue growing amid technological breakthroughs. The US reached peak production last year despite declining US drilling activity because new wells are more efficient, according to government data. US oil production next year is expected to reach another record level, given advances in horizontal drilling and fracking.

“Ukraine war, the COVID lockdowns, those are the things that shaped oil prices in the last four years,” said OPIS’s Kloza.

“The more likely thing is that we’re going to see much more modest prices next year, and we’ll see oil trade in [on] a lot quieter terms than we have for the last three years,” he added.

Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.

Click here for in-depth analysis of the latest stock market news and events moving stock prices

Read the latest financial and business news from Yahoo Finance

Xylem Inc., together with its subsidiaries, engages in the design, manufacture, and servicing of engineered products and solutions worldwide. It operates through four segments: Water Infrastructure, Applied Water, Measurement & Control Solutions, and Integrated Solutions and Services. The Water Infrastructure segment offers products, including water, storm water, and wastewater pumps; controls and systems; filtration, disinfection, and biological treatment equipment; and mobile dewatering equipment and rental services under the ADI, Flygt, Godwin, Sanitaire, Magneto, Neptune Benson, Ionpure, Leopold, Wedeco, and Xylem Vue brands. The Applied Water segment provides pumps, valves, heat exchangers, controls, and dispensing equipment systems under the Goulds Water Technology, Bell & Gossett, A-C Fire Pump, Standard Xchange, Lowara, Jabsco, Xylem Vue, and Flojet brands. The Measurement & Control Solutions segment offers smart meters, networked communication devices, data analytics, test equipment, controls, sensor devices, software and managed services, and critical infrastructure services; and software and services, including cloud-based analytics, remote monitoring and data management, leak detection, condition assessment, asset management, and pressure monitoring solutions, as well as testing equipment. This segment sells its products under the Pure Technologies, Sensus, Smith Blair, WTW, Xylem Vue, and YSI brands. The Integrated Solutions and Services segment provides maintenance services, mobile services, digital outsourced solutions, wastewater systems, environmental remediation, odor and corrosion control, filtration, reverse osmosis, ion exchange, and deionization under Aquapro, WaterOne, and Ion Pure brands. Xylem Inc. was formerly known as ITT WCO, Inc. and changed its name to Xylem Inc. in May 2011. Xylem Inc. was incorporated in 2011 and is headquartered in Washington, District of Columbia.

www.xylem.com