Plastic power! Visa, MasterCard at all-time highsJanuary 2, 2013: 12:01 PM ET
It's hard to find a stock that isn't higher on the first trading day of 2013 as investors around the world cheered the fiscal cliff deal.
What does it say about consumers that the two credit and debit card processing giants are doing so well?
Are individuals, much like the federal government, putting off tough decisions about reining in spending? Perhaps. After all, shares of several large card issuers, such as American Express (AXP), Capital One (COF) and Discover Financial Services (DFS) have all been big winners lately too.
But traders on StockTwits were quick to point out that both companies probably deserve to be trading where they are simply because so many consumers prefer plastic over paper. It may not be a sign that the consumer is overburdened with debt.
True. And credit card delinquencies have not been an issue for major banks for a while now. So it could be the case that consumers are simply using credit cards (or debit) in a responsible way.
But one StockTwits user joked that a good way for charge-happy consumers to stay fiscally fit is to buy what they know.
Very true. And even though it's fair to wonder anytime a stock is at an all-time high if the valuations are too frothy, both stocks still look attractive.
Shares of each trade for about 20 times 2013 earnings forecasts. That's a premium to the broader market. However, analysts expect earnings for Visa and MasterCard to increase by about 19% a year, on average, for the next few years. And that level of growth is far better than most other financial stocks as well as the broader market.
One trader noted that both stocks were given favorable reviews by an analyst to start off the New Year.
Ha! Referring to Barclays (BCS) as Libor St. (or should it be Lie-bor St?) is very amusing. Anyway, I agree that it's probably a bit of a nitpick to choose Visa over MasterCard considering that both stocks trade for roughly the same earnings multiple and have nearly identical growth forecasts.
And as another trader points out, both companies appear to be holding up well despite potential threats from newer payment companies like eBay's (EBAY) PayPal unit and Jack Dorsey's buzz-worthy Square.
Great point. And keep in mind that it's not like Visa and MasterCard are sitting on the sidelines in mobile. Visa is an investor in Square. And MasterCard is one of several financial institutions that's part of Google's (GOOG) mobile payment alliance.
It's silly to talk about the looming death of the credit card business since Visa and MasterCard are both taking steps to adapt to a world where smartphones may be our new wallets.