Are Visa and Mastercard About to Correct?
Visa (NYSE:V) and Mastercard (NYSE:MA) have been two of the best-performing large-cap stocks in the S&P 500. The reasons for this are fairly straightforward: More and more consumers and businesses are using credit and debit cards in order to transact, and if these consumers and businesses are getting their credit and debit cards through their banks, then they are getting Visa and Mastercard cards.
As a result, both Visa and Mastercard have seen their sales and operating profits climb regularly and rapidly. This has sent the shares of the two companies soaring, especially since there aren’t many companies that are growing in this difficult market. In the past five years, both companies’ stocks are up more than fourfold, and in the past year, Visa shares are up 30 percent and Mastercard shares are up 40 percent.
However, no asset no matter how great is going to rise in a straight line, and Visa and Mastercard are no exceptions. We are seeing evidence of this in 2014, as in the first three months, shares of both companies have begun to underperform. Visa shares are down about 2 percent and Mastercard shares are down nearly 10 percent for the year, whereas the S&P 500 is marginally higher.
I think this could be the start of a prolonged and much needed correction that will ultimately weed out the more speculative shareholders in these names who were simply buying the stocks because they were rising.