For better or worse, Americans are in love with credit. There’s something alluring about buying things with money that you don’t have. And while plenty of consumers end up backing themselves into corners that they can’t easily escape, investors would be savvy to consider the companies that consumers are allowing to thrive.
Consider these credit card companies
If you want to feel all warm and fuzzy inside about the state of the U.S. economy, now’s probably a good time to stop reading. But if you want the truth, you should know that Americans had a collective $1.021 trillion in outstanding revolving credit in June 2017. That marks the highest number in the history of the country and the largest since April 2008.
Unfortunately, American consumers are so fond of credit that they often put themselves in negative situations where they have to climb their way out. You can either feel sorry for them, or you can do what savvy investors do and identify an opportunity. Credit card companies and other related stocks are looking like superb investments.
Here are a few to keep on your radar:
Discover Financial Services
The act of issuing cards is Discover Financial Services' (DFS, Financial)Â primary focus. This means its profitability is directly tied to consumer spending habits. When spending is down, Discover stands pat. When consumer spending is up, Discover thrives. The good news for investors is that consumer spending is way up.
Assuming things continue in the direction they’re headed and no major shake-ups occur, there’s no reason not to expect double-digit gains from Discover over the next 12 months.
Green Dot
You might not recognize the name, but Green Dot Corp. (GDOT, Financial) is a consumer technology bank holding company that’s looking like a valuable play for investors who want to enjoy some short-term gains while also seeing a sustainable bottom line in terms of earning growth.
Over the past decade, Green Dot has taken investors on a bit of a bumpy roller coaster ride, but it appears things are finally looking up. It’s been a good year for the company, with a recent one-day surge taking 2017 stock earnings above the 85% mark, but is there anything left for investors who are just now looking to get in bed with Green Dot? Experts say yes.
Credit Acceptance
Just as credit card debt is up, so is the volume of auto loans. While that’s bad news for many consumers who are strapping themselves with depreciating debt, Credit Acceptance Corp. (CACC, Financial) is benefiting. The auto financing company has seen more than 45% growth since the end of March, and experts are predicting even more bullish numbers as the year closes out. It’s consistently ranked one of the best buys across any industry.
American Express
Much like Discover, American Express Co. (AXP, Financial) is directly dependent on consumer spending habits and is enjoying a nice surge as the result of increased consumer confidence and a willingness to take on more revolving credit debt. Since the election, stock prices are up nearly 25%, and there’s still plenty of value left in this play.
Don’t underestimate the credit boom
Some claim that the high amount of debt American consumers are taking on is a sign of a prosperous economy where people are willing to open up their wallets and buy again. Others say we’re constructing a slippery slope that will eventually collapse and lead to another financial crisis. But regardless of what you think will happen, you can solidify your standing by adding a couple of these credit card companies to your portfolio.
Disclosure: I do not own any of the stocks mentioned in this article.
