Charge Up on the MasterCard and Visa Stock Pullback

by Jim Woods | April 15, 2014 2:38 pm

Charge Up on the MasterCard and Visa Stock Pullback

Last week, traders weren’t very kind to the equity markets. They were particularly hard on financial stocks, as the Financial Select Sector SPDR (XLF[1]) was down more than 4% in the week ended 4/11. Things were even worse for many individual financial-related stocks, including credit card payment processors MasterCard (MA[2]) and Visa (V[3]).

Mastercard stock sank nearly 4.9% for the week ended 4/11, while Visa stock was down 5.3%. Both stocks enjoyed a nice rebound in Monday trade, with MA stock jumping 3.7% and V spiking 2.2%. The move higher Monday was due to several positives for the leading payment companies, positives that I suspect will charge up both stocks in the weeks and months to come.

First off, part of today’s gains in Mastercard and Visa stock were due to the wider buying in stocks after last week’s aforementioned drubbing. If and when that buying cools, so too will the buying in MA and V. However, the gains in the two stocks weren’t just driven by tag-along buying.

On Monday morning, Wall Street woke up to a research note from analyst David Konig of Robert W. Baird that upgraded MA stock to “Outperform” from “Neutral.” Konig cited credit card metrics from JP Morgan (JPM[4]) and Wells Fargo (WFC[5]) showing credit card use volumes were about where they were in Q4. That helped quell fears that Q1 volumes will come in weaker than expected.

MA chart 286x300 Charge Up on the MasterCard and Visa Stock Pullback
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Konig also said Mastercard stock wouldn’t likely be tainted much from ongoing litigation with some merchants, or from the economic weakness caused by Russia’s recent aggression in Ukraine. Konig has an $83 price target on Mastercard stock.

Visa stock also got some favorable analyst coverage on Monday from Pacific Crest, which initiated coverage on the shares. The firm rates Visa stock with an “Outperform,” saying that the company is poised to benefit from the growth of mobile payments and digital payment systems in hitherto under served markets. Pacific Crest’s price target on Visa stock is $241.

The upbeat research calls on both Mastercard and Visa stock were particularly welcome, considering both shares have been pummeled lately. For example, in the month leading up to the April 11 close, Mastercard stock fell 10% while Visa stock plummeted 10.9%. This intense selling pushed both stocks below their respective short-term, 50-day moving average and their long-term, 200-day moving average.

The breakdown below the 200-day was particularly noteworthy for both stocks, because the slide below this all-important technical support level can either make or break a stock’s next move.

V chart 286x300 Charge Up on the MasterCard and Visa Stock Pullback
Click to Enlarge
What usually happens when a high-flyer quickly falls below the 200-day average is one of two things: Either the shares breakdown below the 200-day and come tumbling down in free fall, or the smart money starts to pile into the shares as a value play, taking advantage of good stocks at a bargain price.

I suspect the next phase for Mastercard stock and Visa stock are a case of the latter at work, and judging by Monday’s trade, my suspicions are starting to be confirmed.


However, on Monday we received some rather upbeat retail sales data for March, a metric that could act as a tailwind for both Mastercard stock and Visa stock going forward. The Commerce Department reported a retail sales increase of 1.1% in the previous month[6], which was the biggest gain in the measure since September 2012.

More people spending more money is good news for credit card processors, and that might just be the added push both Mastercard stock and Visa stock need to break back firmly above technical resistance.

As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.

Endnotes:
  1. XLF: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLF
  2. MA: http://studio-5.financialcontent.com/investplace/quote?Symbol=MA
  3. V: http://studio-5.financialcontent.com/investplace/quote?Symbol=V
  4. JPM: http://studio-5.financialcontent.com/investplace/quote?Symbol=JPM
  5. WFC: http://studio-5.financialcontent.com/investplace/quote?Symbol=WFC
  6. retail sales increase of 1.1% in the previous month: http://www.reuters.com/article/2014/04/14/us-retail-sales-idUSBREA3D0SP20140414

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