Visa Inc. (V)

He has mixed feelings for both V-N and MA-N. As economies start to do better in the world, use of credit cards will start to pick up. But there is continued pressure on merchant fees and it may get bigger.

(A Top Pick Jan 14/16. Up 21.88%.) Trading at 26X earnings with a 15%-17% growth rate. Decent valuation. This has the benefit of the secular global shift to electronic payments from cash, etc. The acquisition of Visa Europe and the partnership with Costco is going to help as well.

Financials in general look very attractive. He really likes the payment processors. This company has a very strong growth, and is one of the best brands. It has had a few headwinds of late, but you are going to start to see some contributions from the integration of Visa Europe shortly. This is a dominant franchise.

Consumer discretionary tends to do well between October and May. But you tend to have a really good period of retail spending now into the spring. Everyone is buying big ticket items whether it is cars or home appliances, or even doing renovations on homes. This should be a beneficiary. RSI just moved below $70 today. It has been hovering above $70 for the past couple of weeks. $70 is a significantly overbought level. We are seeing these soft sell signals according to momentum indicators, and there should be a pullback along with the broad market and there should be a period of consolidation. The graph shows a bit of a rising trend channel, which it broke out of. The previous level of resistance of about $84 should now act as support, where you should try to pick it up.

He likes free cash flow yields in his holdings. The market is about 4.5%, and if he can get 6%, he is not interested in the stock. This one doesn’t hit the bar for him, and thinks there are more profitable companies out there. Not a bad stock, but just not one for him.

This has been a great growth stock. Valuation is high, it has a 20+ earnings multiple which, for a financial, you question a little. He worries that when you get into an E payment system on a global basis, does this company get left behind. However, this seems to be the best operator in the group. They have taken tremendous market share away from AMEX over the past couple of years, and even MasterCard. They are growing better within the industry, which probably supports the multiple and the growth going forward. Thinks they will be smart enough not to be taken back by the PayPal’s and the E-payment systems. You are probably safe to continue to Hold.

He does not know if they will split the stock. If you don’t own Amazon and believe in on-line commerce, then on-line purchases will be charged to a credit card unless you use PayPal. 85% of the world’s off-line transactions are still done through cash. V-N is a very good company and he would love to buy it at a cheaper price but hold on to it if you own it.

A relatively expensive stock, but since the IPO, this has been a fabulous story. The dividend has grown something like 28% in the last 4 years. The acquisition of Visa Europe is a game changer. Visa Europe was run like Visa prior to its IPO, as a not for profit. You are going to get much larger transaction volumes. They are also going to increase efficiencies and will lead to a much better company. Dividend yield of 0.79%. (Analysts’ price target is $94.93.)

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.

Trading around 25X earnings this year, and 21X next year’s earnings. Not cheap, but has a huge runway of opportunity ahead of it with the conversion of cash to electronic currency, as well as international markets. A great growth company. You can still buy it comfortably over the next 3-5 years. Dividend yield of .8%.

Operates the largest global payment network, and will continue to benefit from online retail commerce, the whole transition into digital online payments. Cash still represents 85% of total payments globally, so there is still a lot of growth going forward. Recently acquired Visa Europe, and as they integrate that, that is going to contribute to earnings this year. Dividend yield of 0.81%. (Analysts’ price target is $94.28.)

Visa and MasterCard (MA-N) have been terrific performers over the last few years. There was so much regulation in other parts of financial services, there was no earnings growth, other than a few names. These 2 were getting all of money and valuations kept getting pushed. On earnings valuation, they are in the mid-20s. They’ve actually come down, because they continue to grow and the stocks flattened out a little. When the other parts of financial services, US banks, US brokerage firms start to do better, money will come out of these high flyers. He prefers things like Bank of America (BAC-N), Goldman Sachs (GS-N), Morgan Stanley (MS-N) which are probably going to have similar, if not better earnings growth over the next couple of years.

Still buying this for clients. The acquisition of Visa Europe was a brilliant acquisition. Their North American margins are 60% and Europeans are 30%, and are not going to stay at 30% for long. Visa is going to improve those margins, and you are going to see a robust earnings growth. The runway is just massive for them. People are still using cash, and we are heading towards a cashless society. Not cheap, but it is never going to be cheap.

(Top Pick Dec 15/15, Up 0.59%) This has legs. 1.9 trillion transactions is amazing. It takes no credit risk. It is a transaction company. Europe is less reliant on plastic than North America. There is some runway in front of them. It grows at about 20% a year. The yield is a bit low but it is really about total return.

He also owns money centre banks and they have done well. This is more of a technology company. They get paid on transactions occurring. Credit card transactions should increase with lowering tax rates in the US. Use of credit cards should still increase also. (Analysts' Target: $93.84)