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In early June, I bought Mastercard Inc. (MA) at around $47.00. I thought I was buying a stock with a forward p/e of 15 which compared nicely to American Express (AXP) at the time. That seemed low and I thought that the stock deserved a p/e multiple of closer to 20. I sold half my position in November at $89.46.

mastercard logoYesterday, I sold the rest at $101.40. Both August and November had positive earnings surprises that helped goose to the stock to a forward p/e of 23 according to First Call estimates. I might be early, but I've ridden this profit rocket long enough and am ready to look for better values.

Prospects for continued earnings surprises? Well, Mastercard is in a business that should be competitive but is not. The big three (four, if you include Discover Card owned by Morgan Stanley (MS)) have managed to keep vendor fees very high. It's amazing that they have been able to do so as they are in an information and telecom processing business. Every other information processing business has suffered margin compression.

Good for them to be able to continue sticking it to retailers and keep fees high (and by proxy, their customers), but at some point this will become an endangered margin and then, watch out. I would rather bet on companies where technology expands margins rather than hope that oligopolistic behavior in the face of telecommunications advances and the internet may endanger margins.

Disclosures and Confessions: With this sale described above, I own no Mastercard Inc. (MA). I may buy back Mastercard depending on price action and earnings but I currently have no intention at current prices. I had to check my wallet to see if I have a Visa or Mastercard logo on my bank credit card since I can't tell the difference between the service anyway. And yes, I have to have an American Express Card too just in case somebody doesn't take Visa/Mastercard. I had a Discover Card but it was hard to use. And who needs that many cards anyway?

MA 1-yr chart:

MA 1-yr chart

Source: Mastercard: Better To Sell Early