Visa Coiled For A Jump

Visa Inc., the well-known provider of global payment solutions, provides credit and debit programs for financial institutions. The company itself does not assume the credit risk of individual users of its services; rather it takes a fee on each transaction. Accordingly, the company’s earnings are sensitive to the general level of global economic activity and the secular trend of adopting paperless financial transaction methods. Interestingly, the company offers a unique hedge against inflation since higher purchase prices translate directly into higher transaction fees.

In it latest quarter, the company reported earnings per share grew by 21% year/year to $1.49, $0.04 better that analyst estimates. Sales grew by 14% year/year to $2.55 billion, better than $2.47 billion estimates. On valuation, the stock holds a forward P/E of 20 on 2012 earnings estimates of $5.96 per share, a 19% year/year increase in earnings. This gives the company a PEG (price to earnings ratio over growth) of roughly 1 — a  low valuation given the company’s unique global franchise.

The stock chart shows an abundance of demand for the stock and a lack of sellers, with recent trading forming a tight price consolidation following an up-gap after the February 2012 earnings report.

Trading rules dictate to enter the stock when it summits the 120 area on an increase in trading volume. On such an event, the stock may be good for 15-20% within a few weeks using a 5% initial stop loss.

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About jstradingnotes

I spend a lot of time analyzing the economy and securities. The effort has enabled me to generate multi-thousand percent returns on my trading capital over the past twelve years. The next few years offer an incredible opportunity to take outsized gains from the markets. Large structural imbalances in the major western economies will result in enormous market volatility as the imbalances get resolved, offering generational money-making opportunities. The major imbalances are excessive sovereign debt, crazy risk concentration in major banks, and enormous derivative exposure in the financial sector. A systemic shock can easily create a default cascade through the financial system where one failure precipitates another and another and so on. Central banks are very aware of the risks, and they are filling the financial system with liquidity by printing new money, risking massive inflation in a few short years for the United States and Europe. China has 2-3 trillion in dollar exposure, and they would like to have far less for fear of continued currency devaluation (they've lost billions holding dollars as the value erodes). As the size of their holdings prevent them from rapidly liquidating their dollar assets (which includes U.S. treasuries), they are instead spending their dollars on resources (copper mines, rare earth metal mines, oil wells, etc.). Lately they have been accumulating gold assets, perhaps with a view to making the Renminbi convertible into gold and displacing the U.S. dollar as the international reserve currency. Their gold buying is enormous and presents an easy investment thesis: ride the Chinese horse and buy gold and gold stocks. In this blog, I'd like to share some of my trading ideas and insights on the markets as these exciting times unfold.
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