The S&P 500 (^GSPC 0.64%) recently reached correction territory as the benchmark index fell by 10% from its recent highs. Not all stocks look “cheap” now, even after this recent decline, but it has created some excellent buying opportunities.
Two stocks that have jumped back up to the top of my watch list are Capital One Financial (COF -3.99%) and SiriusXM Holdings (SIRI 1.54%). Both already looked cheap before the stock market correction and look even more attractive now. I own both in my portfolio, but here’s why I’m planning to add to my position soon.
A special bank with lots of growth potential
Capital One was one of the better-performing bank stocks of 2024 but has since retreated quite a bit. In the past month, the company’s stock fell by about 18%, and now could be a second chance for investors to buy shares.
For one thing, Capital One is a highly profitable bank with a net interest margin of more than 7%, due to the high-interest nature of the credit card business. (Most big banks are in the 2%-3% range.) It could become even more profitable as interest rates come down and lower the cost of roughly $363 billion in the bank’s customer deposits.
One important wildcard is the pending merger with Discover Financial Services (DFS -7.14%), which has been approved by the Delaware State Bank Commissioner and the shareholders of both banks. In addition to dramatically increasing the scope of the credit card business and creating major synergies, Capital One will become the largest full-service bank to own its own payment network. Discover’s payment network currently accounts for less than 4% of total credit card volume in the U.S., but Capital One aims to build it into a true competitor to Visa and Mastercard.
After the recent decline, Capital One trades for 1.08 times book value, its lowest multiple in more than four months. With the Discover merger expected to close any day now, this could be a great opportunity to take a closer look.
A near-monopoly at a ridiculously cheap price
SiriusXM is one of the newest stocks in my portfolio and was trading for a ridiculously cheap valuation before the stock market correction. With shares down 16% since mid-February, the company trades for just 7.4 times forward earnings and has a 4.8% dividend yield, despite having a highly profitable business and solid growth prospects.
SiriusXM isn’t just down from the recent correction. The stock is down by 44% from its 52-week high — and for some good reasons. Revenue has been essentially flat for the past few years and is expected to decline a bit this year, plus the company’s subscriber base peaked in 2019 and remains about 5% below that level.
Despite all that, there’s a lot to like here. The company essentially has a legal monopoly on the satellite radio business and is doing a great job of cutting costs. It’s rolling out some exciting growth initiatives, such as a three-year dealer-sold subscription with new vehicles, a free ad-supported version, and new efforts to unlock the potential of its advertising business.
Management aims to add 10 million new subscribers and increase cash flow to $1.5 billion annually by 2027, which would be a 30% increase from the company’s 2025 guidance. If it can do this, SiriusXM could be a massive win for investors.
Buy for the long term
Both stocks could take investors for quite a roller-coaster ride in the short term. With recession fears, tariff concerns, and general economic uncertainty, it’s important to be prepared for some ups and downs. However, if you can deal with some short-term turbulence, these could be excellent stocks to buy and hold for years to come.
Discover Financial Services is an advertising partner of Motley Fool Money. Matt Frankel has positions in Capital One Financial and Sirius XM. 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.
