With payments increasingly occurring in the digital space, I generally like credit card giant Visa (NYSE:V) as a steady, long-term investment. However, due to the coronavirus from China, steady is the last word describing V stock at the moment. Still, I think taking a breather from the fear-inducing headlines will reveal that this volatility is really a discount.
In one of my recent weekly updates to readers, I urged investors to consider the bigger picture. Yes, the major indices have taken a huge hit from the coronavirus. But it’s crucial to realize that no one outbreak can unseat the innovations that are building this decade. In my note, I stated the following:
“We must stay focused on the big picture and not join any panic selling. To put the situation into perspective, there have been about 2,500 deaths from the coronavirus around the world. All are tragic. At the same time, there have been almost eight times that, or 16,000 deaths, from the flu in just the United States.”
At the end, I noted that “[w]e have no reason to alter our strategy due to the increased market volatility.” This is especially true for an investment like V stock. Typically, credit card companies don’t make exaggerated movements. Instead, they slowly ride on what I term megatrends. That’s why I emphasized not altering our strategy rather than our tactics.
And what is the underlying strategy for V stock? That we recognize the shift in transactions from analog platforms to digital. Let’s face it: today’s consumer-level technology is all about convenience. As such, companies like Visa have aligned themselves to advantage the commerce ecosystem of tomorrow.
V Stock Virtually Guaranteed for Increased Relevance
For starters, Visa is the king of credit cards. As of the third quarter of 2019, the company issued 340 million credit cards in the U.S. and 800 million worldwide. These figures greatly exceed rival Mastercard’s (NYSE:MA) numbers. A country mile separates the rest of the competitors.
Second and more significantly, we’re gradually transitioning to a cashless society. Overall, this aligns with the broader development to replace cumbersome physical accoutrements with digital alternatives. For instance, regular folks no longer carry a separate camera or a notepad: an iPhone from Apple (NASDAQ:AAPL) takes care of these needs and more.
It’s really the same thing with replacing cash and coins with credit cards, thus boosting the case for V stock.
Interestingly, a Harvard Business Review article noted that in 2017, the FDIC reported that “cash represented just 30% of all payments.” Truly, that is no surprise if you’ve been paying attention to the news over the last several years.
Further, major metropolitan areas saw an average decline in the price threshold where consumers will use their credit cards, from $5 to $4. Outside the top 25 metropolitan areas, this threshold dropped dramatically, from $8 to $5.50.
In other words, consumers are increasingly whipping out cards instead of cash, even for small transactions. Again, this is a net positive for V stock.
Third, Visa has ample opportunities to increase market share both at home and abroad. Historically in the U.S., communities of color have sadly encountered obstacles to obtaining credit. However, this awful situation will change not just because it has to but also because of changing demographics.
Already, the millennial generation is incredibly diverse. The emerging Generation Z is even more so. As a matter of survival, the industry must be more accepting.
Visa Has Stepped Into the Future
Despite the many positives for V stock, it’s not without risk. A ready counterargument is that credit cards — which are inherently physical — are subject to disruption themselves. For instance, the shift to mobile payments, where users can essentially abandon their wallets altogether, represents a headwind.
Fortunately, management is well aware of the changing commerce ecosystem. That’s why Visa has initiated many partnerships that will keep the company relevant for years to come. One critical synergy is that the credit card firm has partnered with several wearable device manufacturers to integrate payment capabilities.
Further, with the advent of connected cars, Visa enjoys multiple opportunities. With burgeoning technological advances, drivers can complete transactions while sitting in traffic (and hopefully not while driving).
Here’s the bottom line: V stock was already a relevant investment. The coronavirus simply allows you to sign up at a much more favorable rate.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.