So the market isn't going straight up anymore. Certainly, the market has become more difficult to trade and invest in during the recent sell-off. But for investors or traders who missed much of the rally, the sell-off is a welcome sight.
Indeed, now that the recent jobs report data in the U.S. has slowed even while trade surplus and housing data in China has picked up, a period of consolidation in the S&P 500 and its tracking exchanged trade fund SPY (SPY) may occur over the next couple months. In this kind of environment, I think it is important to find stocks or individual stories that may not need the macro-environment to continue to move higher to go up more.
MasterCard shares topped out at around $445 a share last week, and today they are just dollars off their highs at around $438 a share. Visa shares, after topping out at around $123 a share, are today just a dollar off their all-time highs. These stocks' impressive relative performance has occurred at a time when most of the major indexes like S&P 500 are still off around 5%.
While I detailed a number of fundamental reasons why I think MasterCard's shares are undervalued longer term in my recent article, several recent reports from the big banks suggest these card processors should report very bullish earnings as well.
Both Citigroup and JP Morgan reported strong credit volume growth of nearly 10% in the fourth quarter, up from a growth number of around 7% in the third quarter. Both banks also reported a significant nearly 10% increase in debit card volume during the same period as well. MasterCard has had very strong earnings during even the toughest period of the last several years. And if debit and credit transactions are increasing, this could be the beginning of a significant uptick in consumer spending here and abroad.
The Charts of Visa and MasterCard, are also very bullish.
Both stocks have consistently made higher lows and higher highs during the last month, and appear ready to breakout.
To conclude, while MasterCard and Visa have both more than doubled in the last two years, these stocks are still up around 20-25% over the last four years after traders and investors first began to fear harsher regulation from Dodd-Frank and the new consumer protection agency.
Now that the consumer protection agency has been centralized within the industry-friendly Federal Reserve and limits on certain kinds of fees like debit card transactions have been fairly mundane, these stocks look ready to run. Both Visa and MasterCard trade at around 15x an average estimate of next year's earnings. Estimates continue to rise, and these companies generate enormous amounts of free cash flow, as well.
While the overall indexes may consolidate for some time, growth stocks with strong individual stories and improving fundamentals should be able to continue to move higher. While some high growth stocks like Apple (AAPL) may lack catalysts for the next couple months, stocks like MasterCard and Visa should be able to continue to move higher as long as credit and debit transactions are increasing.