2 Hot Consumer Loan Stocks as Americans Borrow
Coming out of the Great Recession, Americans concentrated on
reducing their debt burdens. You can see the effects of
this deleveraging process by looking at the New York Fed's
Housing Debt and Credit Report. This report shows that
household debt hit is peak of $12.68 trillion in the third
quarter 2008, and has been declining for the past several
years. Needless to add that this surge of fiscal prudence
by American households was an unwelcome development for operators
consumer finance industry
. But, this may have started to change, as recent Fed
data shows, Americans started borrowing again.
This might be one of the first indicators that consumer debt
has hit the floor, and is now in the process of rebounding for
the next several quarters. If we look at the last four
quarters, we can see the final dip in the recession trough, and
then the recent upswing.
For the first quarter 2013, household debt decreased by almost
$110 billion from Q4 2012. During the second quarter of
2013, debt declined by another $78 billion from the previous
quarter. But, in the third quarter of 2013, debt increased
by 1.1% to $11.28 trillion. Then in the fourth quarter
2013, debt increased to $11.52 trillion, a 2.1% jump from Q3
2013, and now only 9.1% below our peak in 2008.
With unemployment coming down and interest rates still low by
historical standards, American consumers are showing greater
willingness to borrow. This is great news for companies
that issue debt.
Companies positioned to benefit from increasing
Discover Financial Services
), a Zacks Rank #2 (Buy) stock, is not just a credit card issuer,
but also provides private student loans, personal loans, home
loans, home equity loans, and prepaid cards. Therefore, a
positive swing of increasing American debt impacts Discover on
In the past sixty days, the earnings estimates for Fiscal Year
2014 have increased from $5.09 to $5.17. Furthermore,
Discover posted a Positive Earnings Surprise for three out of the
last four quarters with an average positive surprise of
Credit card companies like
Capital One Financial
) also have exposure to this positive outlook, but for the near
term, Discover Financial is the most promising.
The Price & Consensus chart below adequately captures the
company's strong momentum.
World Acceptance Corp
), a Zacks Rank #2 (Buy), specializes in consumer installment
loans, and markets electronic products and appliances to
borrowers. WRLD also provides short and medium term loans
and services to individuals. Moreover, World Acceptance
also serves individuals with limited access to consumer credit
from banks or credit unions.
Over the past sixty days, WRLD has seen their Q1 2014 earnings
estimates increase from $3.44 to $3.55, and for the Fiscal Year
2014, earnings estimates have leaped up from $8.73 to
$9.15. Furthermore, over the past four quarters, WRLD has
an average positive earnings surprise of 2.38%.
As consumer's confidence in the recovering economy grows, they
are increasing their household debt; in the forms of home,
student, auto, and credit card debt. In 2013, auto and
student loans both increased by 8%, with auto loans increasing
for the past nine quarters.
So if you are like most Americans, you are probably feeling
more confident in the economy, and are increasing your household
debt. Therefore, it may make sense to look into the
Financial-Consumer Loans segment to capitalize on this recent
trend. A good look at Discover Financial, or World
Acceptance Corp. could help your portfolio in the coming
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AMER EXPRESS CO (AXP): Free Stock Analysis
CAPITAL ONE FIN (COF): Free Stock Analysis
DISCOVER FIN SV (DFS): Free Stock Analysis
WORLD ACCEPTANC (WRLD): Free Stock Analysis
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