Mastercard Inc. (MA)

(Top Pick Jan 24/17, Up 2%) Two players dominate the industry. Other parts of the world are not that comfortable yet with using credit cards, so there is room for growth.

Everything is moving along extremely well in this space. One of the big issues is the Durban report, who have been ruling on exchange fees/transaction fees and trying to get some clarity. That would have been very adversarial towards the credit card companies, but recent news indicates it might have been better than what they had thought. The broad theme of online credit card processing is one that is not going to end.

V-N vs. MA-N. He thinks V-N is the best company and owns it. It has a better foot hold in the debit card space. They process $1.9 trillion in transactions each year. Debit is becoming the favoured plastic now. Expect 20% growth rate in earnings. Card penetration in Europe is only about 25% vs. 35% in North America.

Feels the credit card industry has a very wide economic moat. There are really only 2 players that dominate this industry, MasterCard and Visa. ROE is 50%. They take no credit risks, it is on the issuer. Broke into new highs recently. Dividend yield of 0.8%. (Analysts’ price target is $120.34.)

It has been impacted by rising interest rates. There has been a rotation out of these and into banks. It is just a portfolio rotation. There are still about 28% of transactions globally done with cash and this is why he likes it. There is no fundamental issue with credit cards at this time.

If you have a long-term time horizon this is a great company. A secular growth story, and if you believe that the trend of less cash and people spending more money with credit cards, a sort of a cashless society eventually, it would probably not be a bad time to buy when there is a reasonable pullback of 5%-10% in the share price. Not a cheap stock.

With the US election of lower tax rates and the ability to repatriate profits from overseas, that would be a positive. He doesn’t see this or Visa (V-N) slowing down anytime soon. There is a lot of growth inherently within both of these going forward. He would rather own Gemalto (GTO-NV), the company that provides the chip technology that they both use, which has also been hit with tough times.

They understand all the different kinds of digital payment coming up. Growth outside of North America is in a big uptrend.

MasterCard or Visa? You could buy either, but thinks there is a better footprint for Visa. Both are good. The whole idea of facilitating payments is a wave of the future, and will probably get to a world where there is limited or no cash usage. These companies are natural choices. Both are accepted all over the world.

Owning this has been a good thing to do. The stock looks like it wants to work its way higher.

This has been a great stock to hold. It rallied extremely nicely into the early part of 2015, and since then, like a lot of companies in the market, it has chopped in a trading range. Currently it is back at the top of the trading range. If you believe interest rates can slowly move higher, this is an interest rate sensitive company. Thinks it is very close to breaking out to new highs and that there is a whole leg higher in the stock.

She likes the space, but owns Visa (V-N) instead. There is a secular trend of online digital payments.

A great business in a very powerful longer-term secular trend. We are more and more of a cashless society. Valuation is not cheap. There may be some longer-term concerns, that as people find new ways to pay for things their dominant franchise could be at risk. Thinks the company will be able to find ways to play in other spaces as well, such as buying something like PayPal to get in the electronic payment mechanism. Any time there is a pullback would be a good time to buy this. A very good, long term business.

This is a very good time to enter a position. All payment processors are ideal companies. Generally, they have a very good operational model with limited competition and high fees.

(Top Pick May 13/16, Down 5.34%) There is litigation. It is overdone. They have reserved money, but the suit could grow. The potential for international growth attracts them to it. They have a better chance of getting into China than V-N.