MasterCard (NYSE:MA) is an ideal stock for a long-term growth investment. The premium attached to this stock is mostly based on the consistent returns on equity provided since MasterCard's IPO in the summer of 2006. MasterCard is trading for $547 today ahead of earnings. MasterCard was initially worth $45 per share, it has consistently performed to provide a ROI five times greater than Visa's (NYSE:V) since 2008. Since its IPO, MasterCard has provided investors with an average of a 40 percent annualized return.
For proper perspective regarding growth projections, investors should view MasterCard as a global tech firm with a niche in the payment and credit sectors. The growing card payment demands in places like China, the Middle East and Africa will all help MasterCard's value to increase in the near term. MasterCard has enough prospects currently on its docket to potentially provide strong returns to investors throughout the remainder of 2013 and beyond. Listed below are a number of these projects.
Investors can expect increased revenues and additional sources of growth in the near future from new assets like the Royal Bank of Canada. MasterCard is also negotiating with Kenyan banks in Africa to bring payments options to this massive sample of potential customers. Around 80 percent of Africa is currently unbanked, any news or developments on this front may significantly increase MasterCard's stock.
There are also opportunities for growth in MasterCard's mobile application, PayPass, which is gaining popularity in the U.S. and overseas as well. This app can provide significant transaction growth for MasterCard as users all over the world adopt smartphones as their primary wallet.
Perhaps the greatest proponent for MasterCard's success in the near term will be its growth in China. There was news in mid-April that MasterCard signed a strategic cooperation agreement, with China CITIC bank, for providing payment services to merchants and cardholders in China and the rest of Asia. Some of the services will focus on e-commerce, risk management and provide virtual platforms to clients. MasterCard will benefit from this partnership as China CITIC intends to become the global bank card of China, and expand its worldwide market share.
MasterCard also has a new partnership with Target (NYSE:TGT) that should create some new opportunities for growth and profits in the near future.
MasterCard earnings release for the fourth quarter exceeded analysts' estimates, and it's feasible that the global payment firm will continue this trend. MasterCard's current ROE is almost three times higher than the industry's 16 percent average.
Buying MasterCard at this level is not without risk. It's had an incredible run and any major pullback in the markets, consumer spending or the financial services sector could hurt future growth and earnings.
As was seen during the 2008 financial crises MasterCard took a 50% hit in share price falling from the $290 to the $150 range. It however took less than a year to recover and has trended higher ever since.
Potential protection could be purchased by buying Jan 2014, 520 strike puts, currently trading around $28 per contract. Then selling out of the money weekly expiration calls against your long stock position to recoup the investment in the puts. Giving you the possibility for significant downside protection at little or no cost.
For investors that are considering one of the top global payment companies, there is good support for MasterCard's premium and value as a worthy investment. This is a very technically sound stock when compared with its peers; the return on equity, the growth, EPS and price ratios all favor MasterCard in comparison to Visa. Visa's annualized return for the past five years is less than half in comparison to MasterCard. Investors should expect MasterCard to continue to perform. The value in MasterCard is it has underperformed its peers thus far, year-to-date. Discover (NYSE:DFS), American Express (NYSE:AXP) and Visa have all provided slightly higher returns in the market than MasterCard for 2013. However, considering MasterCard's consistency and international prospects, it's hard to imagine that MasterCard won't catch up.