Charged up Over Charge Cards

12/31/2004 12:00 am EST

Focus:

Richard Moroney

Editor, Dow Theory Forecasts

In seeking his favorite stocks, Richard Moroney goes for solid long-term growth over short-term sizzle. He chose ConocoPhillips as his top pick in 2003, and the stock has shown a strong 33% gain. For this year's pick,  he looks toward a credit-card play.

"The shares of MBNA (KRB NYSE), the owner of the third-largest portfolio of credit-card loans in the US, have moved sideways for most of 2004. But earnings have shown steady growth, and the stock now trades at the low end of its historical valuation range. In November, MBNA became the first US bank to issue American Express cards.

"Growth in MBNA’s loan portfolio has slowed as it has moved away from discounted introductory rates, focusing instead on greater transaction volume. Loan growth should accelerate in 2005, and consensus expectations of 12% per-share profit growth appear reasonable. At 12 times expected 2005 per-share earnings of $2.30, MBNA trades at a discount to its peers. The stock represents a top pick for year-ahead capital gains."

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