While the stock market has seen its share of twists and turns in 2013, one sector that continues to outperform is credit card companies. In particular the two standouts, Visa (V) and MasterCard (MA), have made steady, robust gains all year.
All-time record highs and closes
MasterCard 1 year
Last Friday the S&P 500 cash closed at an all-time new contract high backed by strong earnings from General Electric (+3.53%) and Google (+13.80%). The S&P's 2.4% weekly gain was the largest since mid-July.
Friday the Nasdaq Composite gained 51.3 points or 1.3%, and its weekly gain of 3.23% was its best in three months. The Dow seemed out of favor and saw a much narrower trading range, closing up 28 points at 15,399 and up +1.07% for the week. And the Russell 2000 and S&P midcap traded into record highs.
While all the major indices are posting new yearly highs, MasterCard which started the year at $510.27, made an all-time new high of $716.39 and closed at $715.19, for a gain of 40.16% so far in 2013.
Factors driving Visa and MasterCard growth
Part of the growth is coming from in an increasingly credit-driven society, but the other part is the company expanding its presence around the world. As African nations make increased use of mobile money, MasterCard and Visa have expanded their issuance of both plastic money and mobile payment methods.
Visa 1 year chart
On Jan. 2, Visa Inc. started the year out at $155.38; as of Friday's close the stock hit a 52-week high of $209.99, +29.01% in 2013. While stocks at long-term highs deter some investors as too expensive, last month Visa Inc. replaced HP in the Dow 30 and Warren Buffett is enthusiastic about the stock, which is part of Berkshire Hathaway's (BRK.A) (BRK.B) portfolio.
As the BRIC countries (Brazil, Russia, India, and China) move away from cash and checks to plastic and mobile online payment, Visa continues to have tremendous growth potential, its relatively high stock price notwithstanding.
Mobile is the new plastic
Mobile money is money rendered for any product or service through a portable electronic device, such as a cell phone, smartphone or PDA. While the payment form has become very popular in Asia and Europe, many in Canada and the U.S. are using it too. Both companies are working hard to connect with big mobile payment companies to expand their global presence.
Visa plans to offer its services to 12 different countries across the Middle East and Africa as it attempts to derive 50% of its revenue outside the U.S. by 2015. Earlier this year MasterCard announced its mobile money deal with Samsung (SSNLF) and unveiled its mobile checkout MasterPass and and its new digital wallet. Visa has a similar deal with Samsung to include embedded chips pre-coded for mobile payments.
(Click to enlarge)
American Express invitation-only black card
American Express (APX) has also had a good year and looks to be breaking out as spending on Amex's worldwide network jumped 7% and earnings rose 9% in the third quarter. On Friday the stock made a new high of 80.68 and settled at 80.52 on Friday's close.
Our view is still bullish
Both companies will continue to flourish, but we also think it may be a good idea to do some selling at year end as we cannot rule out some type of correction or pullback in the beginning of 2014.
With the Fed unable to taper before the end of the year, low rates and cheap money, we see new highs for both stocks continuing right into the end of the year. Innovative products, advancements in technology like mobile money and expanding global partnerships make both companies a very attractive long-term investment.
Dow Jones 30 (^DJI) 2013 year chart
Last week I did my first story for Seeking Alpha where I said that the overall price action of the stock market is one of making new highs, pulling back, back and filling and going higher again. At that time I said that the Dow had another 400-500 points one the upside.
Today I would like to revise my year-end target for the Dow to 16,000. We expect some type of pullback to begin this week but see no reason to change any long-side strategies right now.