Again my thesis, which I seem to be in the minority of,is that a strapped US consumer will in fact turn MORE to credit cards to get through the day to day. People have argued that the US consumer will just retrench totally so Mastercard (and VISA will get hurt). I believe each and every week more and more gasoline, grocery, etc type of purchases are going on cards as people fall further and further behind cost of living. I also think things that they used to do direct withdrawel such as electric and home heating bill, will be moved from "pull from checking" to "pull from my credit card". That said, perception is reality and I was worried perception of slowing US consumer would bring down this stock. Last, people forget this is truly an international play and as I have written in the past, many parts of this world are still mostly cash based societies so we have many years of "conversion" in those countries as we "Americanize them" and turn them into credit card drunk consumers. (just like us!) So I am happy I am correct on the call in this company, but unhappy I am not participating much in this move, considering I dropped 70% of my position in the last week. All you doom and gloomers got to me... :P
- Credit card processor MasterCard Inc. said Thursday that strong spending abroad and its sale of stock in a Brazilian company boosted profit in the fourth quarter by about seven-fold. The Purchase, N.Y.-based company said profit in the October to December period rose to $304 million, or $2.26 a share from $40.9 million, or 30 cents a share, a year ago.
- The latest results include an after-tax gain of $185 million from sales of the company's stake in Redecard SA, a company that signs up merchants in Brazil. Excluding that gain, profit came to 89 cents per share.
- Revenue rose nearly 28 percent to $1.07 billion from $839.2 million a year ago.
- The results were well above estimates, even excluding the one-time gain that analysts typically exclude. Analysts polled by Thomson Financial predicted, on average, earnings of 72 cents per share on revenue of $984.8 million.
- MasterCard's full-year profit was $1.09 billion, or $8.00 a share, on revenue of $4.07 billion.
- MasterCard does not have to set aside reserves for loan losses as many of its rivals do. Unlike American Express Co. and Discover Financial Services LLP, MasterCard processes card payments but does not take on the debt. (if you are new to the blog or Mastercard story, I must stress this which I try to do each and every time I write about VISA or Mastercard)
- What could hurt MasterCard is a slowdown in U.S. spending that many economists are predicting in 2008. When cardholders spend less money, that means fewer fees from merchants. (again I think a stressed consumer will turn MORE to cards, not LESS as the current fear is)
- Fortunately for MasterCard, it has increased its business abroad and thus benefited from the weakening dollar. The conversion of stronger currencies to the dollar boosted revenue by 4.7 percent in the fourth quarter, the company said, while international travel lifted cross-border transactions -- which generate higher fees than transactions within a country's borders-- by nearly 28 percent.
- MasterCard's gross dollar volume rose 15.2 percent to $634 billion, discounting currency conversions, and the total number of transactions processed rose 17.2 percent to 5.2 billion.
- Robert W. Selander, MasterCard president and chief executive officer pointed to South Asia, the Middle East, Africa and Latin America as high-growth regions.
- While other big players in the financial sector are selling stock to raise their cash levels, MasterCard is continuing its stock buyback plan; as of Dec. 31, the company repurchased 4 million shares for $601 million, and as of Jan. 25, bought an additional 657,000 shares for $124 million.
Again, I got boxed out by the "fear of dark shadows around every corner" on this name - I admit; it stinks to see a formerly large position run without you. But you can't have everything (risk and safety) at the same time. Once the market returns to normalcy, this is a name I see back in the top tier of positions. Now I have to hope for a general market sell off to bring down Mastercard and continued drum beat of fears that have kept this name down the past month, to give me a better entry point. I am not interested in chasing it up at these levels in this type of market. I am sure we will find another opportunity down the road to buy cheaper.
Long Mastercard in fund; no personal position
2 comments:
Forgot to say in my last comments that I just found your blog and find the whole concept very intriguing. Congrats and keep up the good work, as you seem to have a solid grasp on things.
I too sold off some MA in fear that people would beat it down due to perceived credit risk that doesn't exist for them, or just because the market beats down everyone who reports earnings right now it seems. At any rate, I was curious as to your take on either a "pairs trade" or just shorting DFS or COF. I'm not a big fan of pairs trades because you can almost increase your risk sometimes than if you had just stuck with one position. But, I'm thinking that although consumers worldwide switch from cash to plastic transactions, that the next major "shoe to drop" in the credit market will be rising defaults on credit card payments... especially after this slowdown/recession is all over with. People will have tapped into all they can just to get by and probably can't pay off the balances. COF and DFS definitely have credit risk and so I almost want to short one of them in addition to my MA long. But, again, it makes me wonder if I'm actually adding more risk than if I had just kept a MA long that I buy on dips. Because, AXP showed us the negative reaction the street can give on any news of writedowns/setting aside cash for potential losses. At the same time, the financials as a whole tire me here just because everything is so backwards and you can never truly gauge when bad news will be considered good news and vice versa. At any rate, just wanted your take on a short COF or DFS trade in addition to the long MA. Great blog and keep up the good trades/investments, I'll definitely keep track of your progress and insights.
yes if you search for capital one I have written I think it's a good short in between these rises on the "Fed will save us all" kool aid moves. I have written about the degrading US consumer credit issue since last August and how it will be the shoe to fall in 2008. I think in latter 2008 it will be very apparent.
Now what makes a good investment or not is always up for debate. One can envision a scenario where all bad news is ignored as "Fed cuts fix everything" and any blowups in credit cards can be explained away as "temporary" since "fed cuts will fix all this". Or you can say the opposite. It's really just an art. Do you do the opposite of the opposite of the trade... the market tries to discount the future so much you don't know whether bad news matters anymore at certain points. But I think the credit issuers are going to be in bad shape because I think the consumer is in far worse shape than the media and the stock market thinks. So the stocks can go up and up and up, even if you are conceptually correct. Perception is reality.
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