Buy 'High Quality' Card Stocks Discover, AmEx: Nomura

NEW YORK (TheStreet) -- In a shrinking market for credit card lenders, Nomura analyst Bill Carcache on Monday said that investors should focus on "issuers focused on the high quality side of the credit divide."

Through the credit crisis, American consumers have been deleveraging, with credit card loan balances totaling $820 billion as of April 30, "down 19% from their December 2008 peak of just over $1 trillion," according to Nomura, with JPMorgan Chase (JPM) , Bank of America (BAC) , Citigroup (C) and Capital One (COF) seeing their card portfolios shrink by 25% or more, while American Express (AXP) , Discover Financial Services (DFS) and Wells Fargo (WFC) "have seen their portfolios shrink by nearly 18%."

Carcache on Monday upgraded American Express to a "Buy" rating from "Neutral," while downgrading Capital One to a "Buy" rating from a neutral rating, and sticking with his "Buy" recommendation for Discover.

On the card space in general, the analyst said "while we'd like to be more bullish, we see the decline in balances as structural in nature (driven by regulatory changes and unbreakable consumer de-leveraging)," and that in light of "an uncertain environment where the risk of another recession is elevated," Nomura was "cautious on lend-centric businesses that derive most of their profitability from spread."

Shares of American Express closed at $58.41 Monday, returning 25% year-to-date, following a 12% return during 2011.