Consumer confidence keeps heading lower as gasoline keeps heading higher and property values plummet. This double whammy has the potential to put the consumer into a long tail-spin. In such an environment, as disposable income declines, credit card use goes up.
Visa (V) would benefit from such credit card use, as it already has. The stock has recently pulled off its high of $90 and sits a good 12% lower. Meanwhile, credit card issuers will not fare so well. Companies like Capital One, which issue unsecured debt, will see increasing amount of delinquencies and loan defaults. Capital One (COF) is sitting a mere 10% above its 52-week low and has collapsed from $53 to $39 within 5 weeks.
Despite being in the consumer credit business, these two companies have very different business models. Visa does not issue any debt. They process transactions and make money with each transaction. Capital One issues credit to the consumer and makes money off the interest collected. With homes being foreclosed, and cars being repossessed, credit card debt and loans are a natural contender for defaults too.
In such an environment, I recommend a pair trade. Go long Visa and short Capital One.
Full Disclosure: I am long Visa but my position can change anytime without notice.
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This article has 17 comments:
Vendijanto
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In the last quarter reported, Visa cards were used 11 Billion times.
Based on a 90 day quarter, which is was, the breakdown is over 83,000 time a minute.
Ok, so three people don't use their Visa card as much.
THAT will have a major impact on Visa's earnings. NOT!
Saurischian
Even though I am long on V, anyone who makes purchases on credit cards of any kind is a fool if they don't pay the entire balance each month.
IMHO that is a large part of what is wrong in this world today (financially).
Greed and credit= disaster!
If you can't afford it? Don't buy it.
r
In fact it is in all environment - good and bad, the credit card usage is hugely raising globally. Why pay cash if I can get 5% or 10% discount, reward points and 30 to 60 repayment period if I pay by Visa Card.
ist
even rimm has not been this bad as mastercard. infact mastercard beat 59 cents huge and double guided.
if i tell somebody to look at mastercard stock, they see as though i am recommending a company that has missed last earnings by a dollar or so :-)!!!!
catch on my blog at http:matrader.blogspot...
Bowser Jr
Tiedeman
Done with comments- too many children.
This stock will cross $100 soon
you are suppose to be some big time precious metals expert.
I spoke to the President of Seeking Alpha and he urged me to take a more active role in the site. We will soon be advertising and providing content. Check back and grow up.
As far as being a 'precious metals' expert- I'm involved in all metals from rare earth, to base, to precious- among many other types of investments.
As far as this site and this blog it is, overall, a great place for a lot of topics. I stand by my earlier statements that Yahoo and Google 'Children' (whether 20 or 60) do spoil what could be an intelligent discourse on the merits of a given company.
We created a number of blogs- and our V blog covers the 'plastic revolution':
www.visawinners.com