According to Barron business weekly, the shares of Visa Inc. are cheap and would be a good long term bet, especially because of the overreaction of investors to the new financial regulations. In fact stock of the rivals MasterCard could prove to be an even safer bet due to the low market share in debit transaction processing. It is well known that both MasterCard as well as Visa process credit card and debit card transactions for the banks. One of the provisions of the Dodd Frank law though will cap the processing fees that banks receive from merchants every time a customer uses the debit card to pay for a service or a product.
According to Barron, investors of MasterCard and Visa could feel that this regulation could stifle the growth of the two card giants especially if banks react to the new norms by raiding other forms of fee related to cards. Since the provision came into effect in May, the stock of both Visa and MasterCard has declined by 20%. However, investors might have ignored the core strengths of the card giants in their estimation. Both of them generate growth from a trend which is long term as well as powerful, even as consumers gradually drift from paying cash to using plastic. The probability that there could be a rise in the earnings next year before the law is finally implemented has also been ignored by the investors.
Visa which is the biggest processing network of debit and credit cards is rapidly growing abroad and developing advanced technologies include payments by mobile phones and ecommerce. According to an analyst at an investment bank, this is as cheap as you can ever get the Visa shares. Analysts also predict that the price of Visa shares could climb up by over 30 percent over the coming 12 months. Even MasterCard could reap benefits from the law. It is possible that the US regulators might implement a provision which would require more competition in certain kinds of debit card processing. This will allow MasterCard to take some share of the market from Visa. According to a former portfolio manager, MasterCard has a wonderful balance sheet, along with a great cash flow and strong fundamental business, not to mention a good management. Therefore MasterCard makes a good long term investment. Visa`s stock on Friday was seen to be up by less than 1% while MasterCard saw an increase by 3%.