Visa: Trading Transparency

by: Robert Freedland May 30, 2008 | about stocks: V    

Robert Freedland

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Part of my portfolio management strategy involves dealing with sales at the extremes of my portfolio size.  For me, my minimum number of holdings is five and my maximum is twenty.  I try to 'float' my portfolio between these two extremes based on the activity of my own stocks.  In this case, sitting at five positions, my minimum, the sale of a portion of Copart (CPRT) gave me a signal, or 'permission slip' as I sometimes write, to be looking for a new stock to buy.  And thus, as I have written before, with that nickel burning a hole in my pocket, I set out to find a new stock to purchase.

Checking the list of top % gainers on the NYSE earlier today, I saw that Visa (V) had made the list.  However, the other stocks moved higher and V sold off a bit, so by the end of the day it was no longer on the top % gainers.  However, by that time I had already purchased 70 shares at $85.92 for my trading account.  Visa (V) closed at $85.25 up $3.33 or 4.06% on the day.

Let's take a closer look at this stock and I will try to explain why I purchased shares and why I rate Visa a buy.

First of all, according to the Yahoo "Profile" on Visa (V), the company.

...through its subsidiaries, operates retail electronic payments network worldwide. It facilitates commerce through the transfer of value and information among financial institutions, merchants, consumers, businesses, and government entities in approximately 170 countries and territories.

And how did it do the latest quarter?

 

On April 28, 2008, Visa (V) reported strong 2nd quarter 2008 results.  Revenue and net income rose strongly with net income climbing 28%.  The company beat expectations coming in with adjusted earnings of $.52/share ahead of Thomson Reuters' consensus of $.46/share.  Revenue climbed to $1.5 billion ahead of expectations of $1.45 billion.

The stock actually dipped on this report since it is a relatively recent IPO, having come public on March 18, 2008, and having climbed sharply from the $44/share level with a 66% increase at the time of the earnings announcement.

Looking longer-term at the Morningstar.com '5-Yr Restated' financials page, we can see a steady increase in revenue from $1.98 billion in 2003 to $3.59 billion in 2007 and $4.8 billion in the trailing twelve months (TTM).  There has been an increase from 1.02 billion shares in 2007 to 1.53 billion in the TTM.  I assume this is related to the recent public offering of shares.

The free cash flow numbers suggest a one-time dip in free cash flow with $8 million in 2007 dipping to a negative $(20.9) billion in the trailing twelve months.  Quite frankly, I didn't pay a lot of attention to this figure at the time of purchase (?).  I don't think it is a problem, but would wait for updated Morningstar.com figures as things progress.

The balance sheet is solid with $10 billion in cash and other current assets vs. the $(5.8) billion in current liabilities.
 
Let's take a brief look at the 'point & figure' chart on V from StockCharts.com:

We can certainly see the incredible price momentum on this stock. 

So while the Morningstar.com page is a bit incomplete from my perspective, the recent quarter was strong, I am well familiar with this particular franchise :), and the chart looks great. 

Anyhow, I added it to my portfolio---so now I have a 'financial' stock that appears to be moving strongly higher. 

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This article has 52 comments:

  •  
    May 30 03:09 PM
    Great article! And welcome to the wonderful world of Visa share-owners. You'll be glad you purchased V. I appreciate your taking the time to explain the data that most people tend to gloss over in thier articles here. Great point & figure chart! That was the first I'd seen of that one.

    For share-owners wishing to discuss all things Visa, as well as info for other emerging opportunities, come on over to visaglobalwinners.blog... We'd love to see you there!
    Reply | Link to Comment
  •  
    May 30 03:12 PM
    sorry.. that's visaglobalwinners.blog... :)
    Reply | Link to Comment
  •  
    May 30 03:21 PM
    with a 51% profit in 2 months on declining volume I thought it prudent to take mine off the table even though long term it looks good.

    when it drops again I will consider a re entry position
    Reply | Link to Comment
  •  
    May 30 03:33 PM
    51% is a beautiful number...We all know V will test at various price levels, but I don't know what you'd consider a good re-entry position. Personally I don't think V will test out at the low-70's again like it did, but of course I could be wrong. I bought a large chunk very early on, and bought more on 2 later dips (71 and 78). But I've never sold a single share of any of them since I'm in very long, i.e. it'll be many years before I let go of any of this. I hope you find a way back in and choose to hang on to it for the long term. There will be bumps, just like with any stock, but I think those that hang on through any turbulence will be well-rewarded!

    Come on over to the site I mentioned above for research, opinions and other ideas related to Visa and other emerging opportunities.
    Reply | Link to Comment
  •  
    May 30 03:39 PM
    I also bought recently at $86, hoping not to repeat the mistake I made with Master Card. I bought MA at $58 shortly after it became public and jumped in and out for about a 200% profit over 2 years. If I didn't let my pants catch on fire and sat back and relaxed, I would be up close to 600% now-with a lower tax bill. I'm holding this puppy for as long as possible.
    Reply | Link to Comment
  •  
    May 30 03:46 PM
    Fantastic opportunity to get in on any dips, started with 500 shares @ $58.16 and continue to add on dips.This is THE ONE! to bet a future on.DONT SELL!STAY IN ! THINK LONG TERM!
    Reply | Link to Comment
  •  
    May 30 04:08 PM
    schooledride, I also had 1000 shares of MA bought not far above the IPO price but after about a $20 ride an analyst suggested it was getting overpriced. I should have been deaf to him, but I sold. This time I picked up 1500 shares of V and I am now deaf to analysts' mutterings so I am hopeful V will offer some serious gains like MA did.
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  •  
    May 30 04:32 PM
    yea im young(only 18) so i could only buy 20 shares at 59.50. im a long v. im studying to b an EE. visa is a fantastic company with more potential than ma b/c visa europe hasnt joined. both companies have very solid fundamentals, and there is only risk in regulation and if consumers stop spending money(yea right). this is my best investment so far. the only time a stock i picked performed better was when i bought cypress semi at 21 and it went to 42(briefly). now its back to 28 and visa is my best performing stock. GO VISA
    Reply | Link to Comment
  •  
    May 30 05:00 PM
    I'm glad to hear you all see the long-term potential here.

    schooledrider, looks like hindsight is always 20/20, so lesson learned. you should just sit back and relax now. Just hang on for the ride long term and you'll do just fine.

    willking: keep up with that defiant attitude! :) Really, do your own research, learn as much as you can, and make an informed decision. In this case the decision should be to sit still!

    coeus89: good for you! I wish I were smart enough to get started that young, really. Don't worry about the # of shares you have, we all have to start somewhere. Many are lucky to own 1. So don't worry. You've got a great start!!
    Reply | Link to Comment
  •  
    May 30 05:19 PM
    The writer of the article on Visa, Robert Freedland bought 70 shares?! and this is 20% of his portfolio? That means the guy has about 30K invested total. Gee, forgive me but this guy has less in the market than I do in my used Chevrolet. He must be a hell of a stock picker if he can have enough credibility to appear here with a 30K portfolio. Maybe he started with five bucks?
    I saw yesterday that someone bought 350,000 shares of Visa at $85. I'd love to hear THAT person's take!
    Like the rest of you, I sweated (slightly) through that short lived pullback of ten dollars. Visa charged back quickly on the heels of Mastercard's reporting. I wouldn't look for a pullback in to the 70's anytime soon. I think it's a good entry price right now! The key is hanging around long enough for the stock to break out and I dont see why it shouldnt. I'd be surprised if it doesnt hit 100 quickly and possibly 150 to 200 by year's end. GO VISA!!!
    Reply | Link to Comment
  •  
    May 30 05:46 PM
    Dear Frankmeister,

    Like in Fiddler on the Roof, 'when you are rich, they really think you know!'

    I have other investments such as retirement vehicles and the like. Before you dismiss my comments because of such an honest expression of poverty, drop by my blog and see what you think. You might be surprised. But then again....

    Bob
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  •  
    May 30 05:56 PM
    GO VISA!!!
    Whatever happened to VWinner? He's a good V motivator.
    Reply | Link to Comment
  •  
    May 30 06:01 PM
    Robert great reply to that last comment keep'em comin great article!
    Reply | Link to Comment
  •  
    May 30 06:13 PM
    No doubt! Great reply,Robert! Yea, where the hell is VWinner???
    Reply | Link to Comment
  •  
    May 30 06:37 PM
    I have to smile here, because with a few exceptions we ALL had to start somewhere. Most of us are lucky to have $1000 to play with, nevermind hundreds of thousands, or ~gasp~ millions. It takes hard work, sacrifice, and a confidence in the decisions you're making with your hard-earned money. Sometimes I lament when hearing about people buying 5000 shares and wish I had more than the couple hundred I have. But for ME, I know I have to watch out for the rest of my portfolio and I'm not going to sacrifice 10 funds and a few other stocks to put all my eggs in one basket, no matter how pretty the basket is (like Visa).

    Be grateful for what you have.. there's no need to slam someone else for having less than anyone else. Again, we all started somewhere. I'm happy I can buy even 1 share of Visa!!

    Robert: Keep up the good work, keep the information/data flowing, and thanks again for sharing your article.

    You guys can find V Winner and some other of us 'old timers' over at visaglobalwinners.blog... . He's a little busy at the moment with real world stuff, but he's still around (we won't let him go!!) We share data and opinions about Visa over there for share-owners, and will hopefully branch out somewhat and discuss other emerging opportunities as well. But the core is Visa!! WOOHOOO!!
    Reply | Link to Comment
  •  
    May 30 06:51 PM
    you all just convinced me to hold, all my shares, had a sale on when it hit 89.00 but not any longer, god bless visa!
    Reply | Link to Comment
  •  
    May 30 07:17 PM
    Another writer on Seeking Alpha kept slamming V., and not once did he mention his position on the stock. That is the question. At least you have mentioned your position and why. Good article
    Reply | Link to Comment
  •  
    May 30 09:05 PM
    I am going to buy another 100 shares once my funds clear. I am not greedy, so won't mind buying in at 85 because i am in it for the long run and I still think Visa is a Very Strong Buy even at 90.
    Reply | Link to Comment
  •  
    May 30 09:10 PM
    Cat~eyes I know exactly what you mean. I only have 185 shares and will buy another 100 soon but when i read that some people are buying thousands of shares it makes me seem small. The only bad thing about riding Visa to the top is that when i sell i have to pay taxes on my earnings. you gotta hate the IRS.
    Reply | Link to Comment
  •  
    May 30 10:46 PM
    Yes, we all start out somewhere. I started investing back in 1979 with $100 out of my first paycheck when I worked on Wall Street. That was one of the happiest days of my life. I actually felt like I owned something and was going to be an investor. I've had my ups and downs. I've made millions and lost hundreds of thousands. I've also sat and procrastinated only to watch a perfect opportunity just slip away. The best strategy is to be in it for the long term, and to make extra money to supplement, you should look into selling covered calls. Be careful on that though. You could make a lot of money, but you could also cap your profit! I usually go 1 month out on the covered calls and pick a strike price that I don't think likely to be reached and wait for expiration. If the price of the stock drops enough, I'll buy back the calls and wait for it to go back up and sell them all over again! I'm long 10,000 shares of V now and plan to add another 20,000 in the next week. I believe it's going to hit 90 in June and just go up from there. Sure, there will be dips where profit taking takes place, but stick with it and buy on the dips.

    Have fun with it, think long term and don't fear the plunges. Visa isn't a dot-com so it's not going bye-bye overnight and will only grow stronger!
    Reply | Link to Comment
  •  
    May 31 12:12 AM
    steven: thanks for sharing your story.. gives me something to look forward to! I think the overriding idea here is to stick with a stock that you believe has solid fundamentals, and not get scared off by those occasional plunges. If you have the research to understand WHY it happens, then you'll be less likely to dump a good stock and have to kick yourself later.

    big O: glad you decided to stay in for a while!

    Anthony: I know what you mean, but we all have to pay uncle sam! I'd advise anyone that doesn't currently have a CPA to run out and get one, especially if they are trading any stock. There are too many tax implications that we'll never understand!
    Reply | Link to Comment
  •  
    May 31 08:38 AM
    what do you people think of the options on the big --v-- machine?
    Reply | Link to Comment
  •  
    May 31 09:06 AM
    Both Visa and Mastercard are in a great business. Every time somebody whips a card out of their wallet they make money and with little risk of any other company attempting to start up and share in this space. Brand recocnition for both should prove to be the gift that just keeps giving for years and years IMO. I too am long with 800 shares of V. This is a stock that I am not even thinking about trying to time and lock in short term profits. I feel V has a long, long way to go higher. Just think about the people that recently tried to time it and got out in the $76 range. Hope they were able to get back in because it all happenend pretty quick now in the $86 range.
    Reply | Link to Comment
  •  
    May 31 09:26 AM
    Trde04 - When you ask what we think about options on V, what are you really asking? There are so many options strategies, it'll make your head spin! Options are very risky and such should be well thought out before playing them. I like to think of them as a wasting asset. If they stay out of the money too long, they waste away in value. As time goes on, intrinsic value declines. If you are not careful, you could lose your whole investment in them!

    My advise is to play them conservatively, and only with money you can afford to lose. If you turn out a winner on them, great, but be prepared to lose some too! I've made plenty but I've also lost quite a bit playing options.
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  •  
    May 31 09:51 AM
    I was lucky enough to get 100 shares on the IPO at $44 and am quite pleased...however, being cautious i sold half my position at $88 leaving the other 50 shares as pure profit....I intend to buy again if it breaks below my test position.
    Regarding option strategy, why not sell a put, collect the premium, and in worst case, get the stock below current price. Also one of my strategies...
    Nice comments from everybody.
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  •  
    May 31 11:14 AM
    There are newly issued shares of companies with short operating histories, and then there are those companies who have a global domination in their business. The former it is good to be conservative with as you can get your head handed to you, but the latter, which describes companies that will be around longer than you and I combined can best be described as maximizing profits by being patient and not trying to outsmart the market. This is a 20-30 year holding with a 40 bagger in store; to cut yourself short by selling any portion within the first few months is doing yourself a giant disservice unless you really need the money.
    Reply | Link to Comment
  •  
    May 31 12:25 PM
    The Visa stock is money in the bank.
    Reply | Link to Comment
  •  
    May 31 02:30 PM
    ...- is Victory
    Minimum Expenses. V should keep flying.
    Reply | Link to Comment
  •  
    May 31 03:30 PM
    I always enjoy your articles and picks Bob - keep them coming.
    Reply | Link to Comment
  •  
    May 31 04:50 PM
    I sold my 1000 shares at $87.50 today. I am happy with 25 % profit in my pocket and smiling to the bank.
    Next week when it go down than I will buy back again. hit and run
    is more fun.
    Reply | Link to Comment
  •  
    Jun 01 05:57 AM
    Tommy, Visa is a great company which will give you a great return, have fun with short term trade, also my opinon is to keep a core position for long term in 2, 3 years like MA, which will give you a even better return. So you win in both long term and short term.
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  •  
    Jun 01 08:42 AM
    V will see 100 in a month or so.
    Reply | Link to Comment
  •  
    Jun 01 09:48 AM
    You guys honestly think V will trade at $200/share in 1 or 2 years? Thats an awfully large market cap......this company is a 200 billion-250 billion market cap?
    Reply | Link to Comment
  •  
    Jun 01 09:55 AM
    at $200/share....that makes Visa's market cap 200-250 billion. thats awfully large.....and makes the stock awfully expensive.

    I dunno....good company...but I am not feeling the price of it.

    using a 2.03 EPS for 2008.....and a 20% growth rate.....the fair value at the end of 2008 is $53/share.

    MA fair value at the end of 2008 given 20% growth is $228/share.