Visa (V) and Mastercard (MA) may be cheap and at significant support areas
Funny how I bought my first shares of Visa (V) last week and was just writing up an argument that V is cheap and at an important technical area only to find that Barron’s beat me to the punch this weekend.
Shares of Visa (V) have been beaten up since the April top in the market currently down 17.5% year-to-date. Mastercard (MA), likewise is trading down 19% YTD, a significant lag of the S&P 500’s 0.6% gain. The headlines have shown nothing but pain to shareholders over the last several months.
The Durbin amendment attached to the financial reform bill mandates the Federal Reserve to regulate debit card fees. Investors have significantly discounted shares fearing a major cut in fees for issuers of cards and processors of transactions. On top of this uncertainty, recent news that AT&T (T) and Verizon (VZ) are investing in a swipe system for cell phones that would charge through Discover Financial (DFS) added to investors’ worries.
Fears over the Durbin amendment’s impact along with the smartphone competition may easily be overblown. If one still believes that the secular paper-to-electronic transition occurring globally has yet to run its course then this may be a prime opportunity to be an investor. The legislation is ambiguous and the financial hit is unknown at this stage but there may be enough value in shares to provide a solid margin of safety. The over $5 and $3 billion in cash balances on V and MA’s balance sheets should offer powerful flexibility.
V, at $72 per shares, trades at 15 times forward estimates and a PEG of 1.2 with over $6 in cash per share and virtually no debt.
MA, at $207 per share, trades at 13 times forward estimates and a PEG of 0.90 with over $26 in cash per share and virtually no debt.
The support levels are roughly $70 in V and $200 in MA. Shares of both are trading very near these levels that have shown continued buying interest.
Disclosure: Long V.