We initiated new positions in two companies. Credit services company Capital One Financial Corp. (COF, Financial) is one of the most recognized brands in financial services and the 8th largest bank in the U.S. The firm has national scale as a top five credit card and auto lender and a significant traditional branch banking presence with commercial lending capabilities in a number of large U.S. markets. We expect Capital One’s core credit card and auto loan segment to experience continued loan growth as a function of an improving economy, an improving job market and increasing confidence in consumer spending decisions. Capital One also benefits from the continuing shift in favor of electronic payments (i.e., ApplePay) versus cash and check. We believe Capital One will continue to generate healthy returns in a business model that is capital generative and the market will reward Capital One for its earnings power and its management’s new focus on returning capital to shareholders versus acquisitions.
We also initiated a position in specialty chemical company Eastman Chemical Co. (EMN, Financial) when concerns about the company’s Fibers business led to a decline in the shares which we believe provided an attractive entry point. The company continues to add higher-margin, strong cash flow-generating businesses to its portfolio while the company is much less exposed to petrochemical earnings than its peers Dow Chemical Co. (DOW, Financial) and LyondellBasell Industries N.V. (LYB, Financial).
