One of the most important factors when looking for stocks to hold forever is culture. Companies with a terrible culture have a potentially unsustainable business model. Companies with a thriving culture have employees who are happy to come to work and get on with their jobs.
In The Motley Fool Investment Guide, Motley Fool CEO Tom Gardner provides some of the tools he uses to assess a company’s culture. Foremost among them are FortuneGlassdoor.com’s annual “Best Companies to Work for” and “Best Workplaces” lists. Let’s take a look at the only two financial services companies to be on both lists – American Express (NYSE: AXP) and Capital One Financial (NYSE: COF) – to decide if companies are a good buy now for long-term investors.
Capital One Financial
Capital One is ranked 9e on the Fortune list and 88e on the Glassdoor list. The pandemic strained all kinds of businesses over the past year, but having a strong culture that could react nimbly to changing circumstances helped keep businesses operating when problems arose. According to Fortune, “Capital One, like other banks, has implemented security measures, but the company also temporarily increased hourly wages, raising wages by $ 10 an hour for branch and Capital employees. One Café and adding $ 5 an hour for call center agents ”during the pandemic.
On Glassdoor, the bank earned an average of 4.2 stars out of more than 10,000 reviews. Capital One CEO Richard Fairbank also ranked on Glassdoor’s Best CEOs list, coming in at 38e with a 95% approval rating. Fairbank owns more than $ 500 million in Capital One stock, showing that it is personally invested in the success of the company and aligned with the interests of shareholders.
The bank has gained 15 places on the Fortune list compared to last year, and the employees certainly seem to approve of the culture and the management team. But how did he behave financially?
Capital One is known for its credit card business, which accounted for $ 17.6 billion of the company’s $ 28.5 billion in gross revenue in 2020. Slowing consumer spending and uncertainty over losses Loan potentials hit the business hard in the first half of 2020, with total provisions for loan losses increasing by $ 6.6 billion during that time period. The company recorded losses in the first two quarters and reduced the dividend from $ 0.40 to $ 0.10 per quarter after the Federal Reserve limited dividend payouts.
The summer stimulus helped boost credit card business in the second half of the year, and ultimately revenue for 2020 was only down 5% from 2019. Profits before allowance for the entire year were actually up 3% from 2019, and Capital One released $ 593 million from its loan loss account.
Fast forward to 2021, the stock has risen nearly 60% year-to-date, the dividend has fallen to $ 0.40, and the company has repurchased $ 490 million (out of $ 7.5 billion). authorized dollars) of shares. Meanwhile, its price-to-earnings ratio is just over 15 and its price-to-pound ratio is 1.13, both just around the industry average and a bargain price for a quality company. with a thriving culture.
American Express arrived at 10e on the Fortune list and 67e on the Glassdoor list (if those Glassdoor rankings seem low, remember that Glassdoor’s database contains thousands of companies). Fortune wrote that the company “has pledged not to lay off any employees due to the pandemic in 2020 – a pledge the company proudly says it has kept. AmEx has provided workers affected by COVID-19 with financial security at a uncertain moment; he guaranteed full wages to those who could not work.
American Express has an average Glassdoor rating of 4.3 stars out of 11,000 reviews. CEO Stephen Squeri has a 95% approval rating. He took the job just over three years ago, but has been part of the company’s management team as vice president or group president since 2005.. Before the pandemic, AmEx was advancing in terms of returns with Squeri at the helm, and he was in the top 25 of Fortune’s list every year of his tenure, spending the last two years in the top 10.
American Express’s business suffered the same kind of blow as Capital One’s during the first half of 2020. At the end of the second quarter, worldwide billed business was down 33% from 2019 and the company had increased its loan loss reserves by $ 2.3 billion. However, AmEx’s woes were not resolved by a good summer. Total income for the year, net of interest charges, fell 19% from 2020, and net income of $ 3.14 billion plunged a further 54%.
American Express has enjoyed greater annual success than other credit card providers as it caters to a wealthier clientele focused on travel and entertainment. The most popular partners for AmEx cards are airlines and hotels. Additionally, American Express provides financing to card users from its own balance sheet, rather than passing that risk on to partner banks, so it had to write down more than $ 4 billion in 2020 in provisions for credit losses.
Despite the poor net income performance, American Express almost regained its pre-COVID action peak in 2020. It has since hit new highs amid $ 1 billion in reserve releases and an 11% increase expenses of card members for things other than travel or entertainment. In the first quarter, management expects 2021 EPS to meet the targets initially set for 2020 and growth to take off from there.
The company is now trading at a healthy forward P / E of 24.57 and a price to book ratio of 5.20. It’s not the same kind of value stocks as Capital One, but investors should expect a more stable long-term recovery from the company.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.