Prop trader Christoph Feymann Capital has identified Visa as a consistent core holding for client portfolios with an added short term zing for traders. The card payments specialist has always been considered something of a ‘boring’ play for traders, but the London-based trading outfit reckons otherwise.
The core of any successful portfolio is made up of stable blue-chip stocks, the firm argues. They are meant to deliver excellent returns on investment year in year out, while providing reliable growth with long term development strategies and experienced management teams to deliver on them. Additionally, such stocks should be financially healthy with low debt ratios and ample free cash flow.
So why buy Visa shares?
Visa has a circa $300 billion market cap and enjoys a dominant position for its fintech oligopoly, making it most definitely core holding material.
“With VISA Inc., big is definitely not boring” explains Christopher Ailsworth, Senior Strategist at Christoph Feymann Capital. “They proudly held the honour of having the highest value IPO in the USA for many years and have grown in value by around 800% in the last 10 years. We have used VISA as a successful profit-taking vehicle for our clients for many years and will do so for many more.”
Whenever a consumer pays for goods or services using a Visa card, Visa gets a couple of percent commission from the sale due to the fees they charge merchants. Multiply this by millions of businesses and billions of people across the globe, and you’ve got a robust business model, especially considering Visa already has around 50% share of the global credit card market.
Visa sees large profit growth as more cards are introduced into circulation, which piggyback off global GDP growth. It’s a similar situation to successful retailers who see growth from opening new stores and from same-store sales growth. The more cards circulating worldwide plus more money spent on each card combine to give Visa a much easier path to double-digit revenue growth than any other company out there.
The ‘zing factor’ for trading Visa shares
And Visa packs an extra punch. The ‘zing factor’ for the medium-term traders is event driven growth spurts. While the primary consistent growth driver is organic take-up in emerging international markets, satisfying value spikes are catalysed by the delivery of new initiatives.
Improved merchant services, gift cards, on-line services, and the impending B2B platform have and will continue to deliver impressive short-term gains which, as history shows, are retained in the value of the stock. These short-term plays take the stock from an average 25% annual growth rate to a far more appealing 98% which in a balanced and position-limited portfolio, is a very healthy contribution to overall growth.
You only have to look at the 92% institutional ownership of Visa shares to see that the smart money knows where to place itself; Vanguard Group (133m shares), Blackrock Inc. (122m shares) and FMR (86m shares), although it has to be said that much of these will derive from the passive holdings of index tracking funds.
Christoph Feymann Capital says they will continue to invest their proprietary trading capital into Visa shares and will be guiding their clients into the stock for the foreseeable future as well.