The investment world has been busy focusing on AI stocks. Bank stocks, from their side, have also been very profitable in 2024. Banks like JP Morgan, Bank of America, and Wells Fargo have shown robust capitalization and have benefited a lot from high interest rates.
Although the overall landscape, although the overall economic landscape looks weak due to supply chain disruptions, chill political tensions, and a general slowing of global economic growth, analysts expect this positive trend to continue in 2024. US and Chinese Banks dominate the market, while Indian and Middle Eastern Banks haven’t shown particular signs of growth but are expected to grow in the next few years.
In the last 6 months, JPMorgan Chase & Co stock (NYSE: JPM) has experienced a 36.60% increase, Bank of America Corp stock (NYSE: BAC) a 35.71%, and Wells Fargo & Co (NYSE: WFC) a 40.31%.
Directly, credit card companies such as American Express, Visa, and MasterCard have also experienced growth due to their ties with the banking industry and thanks to the significant role they play in the growing digital payment industry. Visa stands out as one of the best stocks to buy in 2024, showing strong growth and profitability. This is because the company operates as a network of networks, facilitating transactions online with very little face-to-face interaction. Visa is also investor-friendly, allowing stock buybacks and dividend increases that have helped to boost its desirability among investors.
In this article, however, I will be discussing MasterCard. The company has already gained 17.61% YTD, and with earnings scheduled between April 25 – 29, 2024, I believe that the company can bring to investors easy gains.
Mastercard’s Market Expansion
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When searching for stocks to include in a long-term investment portfolio, it’s important to find a company with an edge. Companies with qualities that protect them from competition are in a position to maintain their leadership in the industry over time.
An excellent example of such a company is Mastercard, known for its network effect. With its cards accepted by over 100 million merchants globally and more than 3 billion cards in use, Mastercard has built a two-sided market that grows stronger with expansion. Its deep roots in the system make it extremely difficult for new players to pose any significant challenge.
Mastercard’s transaction system is set up to allow data to move directly between parties without needing to go through a hub. This configuration boosts the system’s reliability by minimizing the impact of any failures. By utilizing processing methods, Mastercard’s network is crafted to cater to a range of transaction requirements, ensuring that payment processes are both secure and smooth.
Moreover, Mastercard collaborates with banks worldwide to offer credit, debit, and prepaid cards. The network acts as a point for sharing transaction information among cardholders, merchants, banks, issuers, and Mastercard itself. The revenue structure includes charges associated with using Mastercard and interchange fees that are agreed upon between issuers and merchants.
Mastercard’s financial performance remains robust despite the emergence of fintech startups and advancements, like digital currencies and blockchain technology. This demonstrates the company’s quality, highlighting its resilience and minimal vulnerability to industry disruptions.
Mastercard’s Growth Trajectory
Mastercard’s leading role in the fintech sector, coupled with its expansion into new markets, is expected to solidify its network benefits despite the possibility of regulatory challenges. With its impressive growth trajectory and robust profit margins, Mastercard stands out as a top-tier entity in the industry. Although the stock might appear pricey at first glance, it is deemed fairly valued, allowing investors to partake in the company’s future growth.
Since the onset of 2023, Mastercard shares (NYSE: MA) have witnessed a 36% increase, outpacing the S&P 500 index’s 33% rise during the same timeframe.
Reviewing Mastercard’s performance, there’s been a notable 33% rise from a January 2021 price point of $355 to approximately $475, mirroring the S&P 500’s growth pattern over this nearly three-year span. Despite the fluctuations in Mastercard’s returns, including a 1% increase in 2021, a 3% decrease in 2022, and a significant 23% upswing in 2023, it has managed to maintain a relatively stable performance compared to the S&P 500’s more volatile trends during those periods.
This variance is typical among other financial and tech heavyweights like Visa (V), JPMorgan Chase (JPM), Bank of America (BAC), as well as tech giants such as Google (GOOG), Tesla (TSLA), and Microsoft (MSFT). Conversely, the Trefis High-Quality Portfolio, comprising a select group of stocks, has consistently outshone the S&P 500 annually by delivering superior returns with reduced volatility.
Amid the prevailing uncertainties marked by rising oil prices and escalating interest rates, it’s uncertain whether Mastercard will replicate its past successes or outperform the S&P 500 in the coming year. Nonetheless, the company’s exceptional fourth-quarter performance in 2023, which saw a 13% increase in net revenues to $6.5 billion, exceeded expectations. This growth was propelled by a 10% surge in gross dollar volume, an 18% increase in cross-border volume, and a 12% rise in transaction volume. Notably, the revenue from cyber and intelligence solutions significantly contributed to a 19% expansion in value-added services and solutions. Despite elevated operating costs, the company’s net income rose by 11% year-over-year to $2.8 billion.
Projections indicate that Mastercard’s revenues could reach $28.12 billion by FY2024, with an adjusted net income margin of approximately 48%, resulting in a net income of $13.44 billion. Based on these forecasts, along with an EPS of $14.43 and a P/E ratio just below 33x, analysts estimate Mastercard’s valuation at $471, reinforcing our positive outlook on the company’s stock.
Conclusion
In summary, within the changing landscape of the industry and the rising impact of fintech, Mastercard stands out as a shining example of long-term success and strategic vision. Its significant presence in markets, strong network effects, and innovative approach to payment trends not only help it navigate through evolving economic environments but also thrive in them. The collaboration with banks worldwide and seamless integration of its services into transactions highlight its role in the payment processing sphere.
Despite hurdles posed by technologies and competitors entering the market, Mastercard’s steady performance, strategic expansions, and solid financial foundation showcase its resilience and potential for continual growth. Looking ahead, Mastercard’s trajectory provides insights into how banking strengths can blend harmoniously with fintech innovation, setting a high standard for excellence in the global financial sector.
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