Are the stock market bears right?
This week will offer up a slew of economic news, but the most important is what Visa Inc. (NYSE/V) and MasterCard Incorporated (NYSE/MA) report with their earnings.
These are two powerhouse wealth creators.
The credit card business has proven to be a good one. On the stock market, the performance of these two companies has been exemplary, backed by strong growth in revenues, earnings, earnings per share, and shareholders’ equity on an annualized basis.
Credit card companies are important benchmark stocks. They are a gauge of not only consumer spending, but also consumer confidence. People spend money when they have more confidence and there is more certainty.
If only corporations would do the same.
Visa is much more expensively priced on the stock market compared to MasterCard. American Express Company (NYSE/AXP) recently broke out to the upside, but the stock really hasn’t done anything for the last 13 years.
Discover Financial Services (NYSE/DFS) is one of the most reasonably priced credit card companies. Comparatively, the company pays more dividends than its counterparts.
MasterCard’s stock chart is below:
Chart courtesy of www.StockCharts.com
Wall Street earnings estimates recently came down for MasterCard. This likely reflects the weaker economic output in March.
But current consensus is still calling for the company’s revenues to grow approximately 12% this year and the same in 2014. This is impressive for such a mature and competitive business.
One very noticeable trend with MasterCard is that its trading volume on the stock market has been declining since the financial crisis. At the same time, its stock market value has basically doubled over the last two years. This makes the case that this position is very much due for a retrenchment.
In MasterCard’s earnings results for the fourth quarter of 2012, revenues grew 10% to $1.9 billion and processed transactions grew 20% to 9.2 billion.
Net earnings grew 18% to $605 million, while earnings per diluted share grew 21% to $4.86 per share, excluding a one-time item. Shareholders’ equity grew significantly.
Both Visa and MasterCard, like the rest of the stock market, are definitely due for a break.
But both of these companies are stock market favorites, and it’s likely that many large investors will continue to hold their positions in these companies, because they are so well managed and offer great track records. (See “A Bear Market for Stocks? Not for These Two Companies.”)
Regarding the question at the beginning of this article, the stock market has proved the bears wrong so far.
It would certainly be a healthy development for the market to experience a meaningful pullback. But even with less-than-inspiring earnings and economic news, institutional investors are buying.
This is a market that can still move guardedly higher.