1 Beaten-Down Bank Stock I'd Buy Right Now, Even With a Recession Likely to Happen

Capital One Financial (NYSE: COF) is down by 30% from its 2025 high, as of this writing, which it reached in mid-February. And the stock is down for some good reasons.

While it might not seem like a victim of tariffs -- and it isn't, at least not directly -- the tariff plans could cause inflation and are making a recession far more likely. This could hurt consumer loan demand and lead to people having trouble paying their bills, which would create higher loan-loss rates for banks. With a high concentration of credit card loans, Capital One can be an especially cyclical bank stock.

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However, I believe most of the potential tariff fallout is reflected in the stock price after the recent sharp decline, and the market is overlooking some of the reasons Capital One could be a long-term winner. Here's why I'd be comfortable buying shares of Capital One right now, even with the economic turbulence we're seeing.

An excellent business

Capital One is one of the largest regional banks in the United States. Best known for its credit card business, which makes up roughly half of its total loan portfolio, Capital One has $363 billion in customer deposits and has a substantial branch network, mostly in the Washington D.C. metro and surrounding areas.

The bank is a highly profitable financial institution, thanks to the high-interest nature of the credit card industry. In the most recent quarter, Capital One produced a 7.03% net interest margin, while most of the big U.S. banks have interest margins in the 2%-3% range.

Credit card exposure makes Capital One's business more cyclical, but the excellent margins give it some protection in tough times. (This means it would take a big spike in defaults to erode a 7% net interest margin.) The bank's credit card net charge-off rate is currently about 6% and its interest expense is about 3.2% on deposits, while the average credit card interest rate in the United States is about 24%.

In addition to its credit cards, Capital One is a major auto lender and has a large portfolio of commercial loans.

One big catalyst

While it has certainly been overshadowed by the recent market noise, Capital One is getting very close to completing its all-stock acquisition of Discover (NYSE: DFS). The proposed acquisition just cleared its arguably biggest hurdle when it received a stamp of approval from the U.S. Department of Justice.

The merger is a big deal for Capital One for two big reasons. First, it dramatically expands Capital One's credit card business. Discover has roughly three times the number of account holders as Capital One. Not only does this bring in their credit card accounts, but it also gives Capital One opportunities to cross-sell other banking products and services.

It's also worth noting that the two banks generally focus on different types of credit card products, making them an excellent complement to each other. For example, Capital One offers some of the most popular travel cards, while Discover is known for its high-cash-back cards with rotating spending categories.

Second and more significant -- Discover operates its own payment network. This will make Discover the largest bank (by assets) with a closed-loop network, which should create an abundance of opportunities for savings. For example, Capital One plans to initially move its debit card processing to the Discover network (as opposed to Visa or Mastercard).

To put it mildly, the merger has billions of dollars in savings opportunities over the coming years and also creates more growth potential.

A rock-solid institution at a discount

Capital One has an excellent track record of delivering strong returns for investors over time.

Many people don't realize that Capital One is still a founder-led business, an extreme rarity among big U.S. banks. CEO and President Richard Fairbank has been at the helm since the company was a pre-revenue start-up.

Since its 1994 initial public offering (IPO), Capital One has delivered a 4,100% total return for investors, even after the recent declines -- more than double the return of the S&P 500 (SNPINDEX: ^GSPC) over the same period. There's no guarantee the next 30 years will produce the same result, but this is an incredibly strong track record.

Right now, Capital One trades for 5% less than its book value and for about 9.5 times forward earnings estimates. The company has excellent profitability and a lot to look forward to when the dust settles from the tariff-fueled market mayhem. As a result, now could be a great time for risk-tolerant investors to take a closer look.

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Discover Financial Services is an advertising partner of Motley Fool Money. Matt Frankel has positions in Capital One Financial. The Motley Fool has positions in and recommends Mastercard and Visa. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.