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Two Long Plays on Credit Cards

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January 04, 2008 – Comments (1) | RELATED TICKERS: MA , AXP , COF

There's much in the news and on CAPS lately about how consumer credit card issuers are taking it on the chin following recent mortgate woes. But believe it or not, there IS a consumer credit long play for CAPSters - one that benefits from America's staggering use of credit cards - but with little or none of the risk of defaults. And in February, there will be TWO such green-thumbable stocks. "What you say? Somebody set up us the bomb!" Read On!

I speak, of course, about MasterCard (MA). A few red thumbs on them right now, but the red thumb pitches clearly show the MA shorts do not understand that MA is merely the processor. They are not carrying the burden of risk associated with the massive debt load Americans have racked up. That burden is on the issuers: American Express, CapitalOne, HBSC and Discover Financial Services.

But if folks are cutting up their credit cards, won't MA lose money since credit card transaction processing volumes will be thinner? Sure, some. But there are tens of millions of more Americans who will continue to use their cards like crazy than there are of those who are forced to set them aside, either through bankruptcy or through a voluntary program of paring down their use.

Morgan Stanley is bullish on MasterCard, saying data from Visa Inc.’s latest SEC filings indicate that Visa upped prices since last year. That gives us two outs when Visa makes an offering next month.

Green Thumbs: MA, V (MA right now, V after Visa's IPO).

Red Thumbs: AXP, DFS, COF.

Hand O' the Day: None as yet. If I play any today, I'll be sure to add one tomorrow. 

Play tight, everyone, and move Zig, for great justice!

Andrew. 

1 Comments – Post Your Own

#1) On May 13, 2008 at 10:59 AM, TMFDeej (99.40) wrote:

I completely agree with the red thumbs, Andrew.  I refuse to talk about MA though.  I came within a hair of pulling the trigger on the IPO but was scared off at the last second by some lawsuit garbage in the prospectus.  Therfore, I am pretending that this company does not exist :).

Deej

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