Visa (NYSE:V) stock now has declined more than 20% in less than a month. It’s difficult to see much reason for that sharp selloff.
Certainly, the coronavirus from China is going to cause short-term disruption in the global economy. But savvy investors don’t own a stock for its earnings in a single quarter — or a single year.
It’s a long-term focus that drives market-beating returns. Too many investors have lost that focus.
For the rest of us, that creates an opportunity to own attractive businesses at a cheaper valuation. There are few more attractive businesses out there than Visa.
I’ve been asked repeatedly during this selloff if my bullishness toward U.S. stocks has changed. The answer is no. I’ve written that this decade will be the Roaring 2020s. I still believe that to be the case.
The human toll of the coronavirus so far is tragic. But the country, and the world, will survive this crisis — and thrive going forward.
Significant tailwinds like 5G wireless and artificial intelligence offer enormous opportunities. Technological advancements will improve life and drive growth.
Admittedly, Visa isn’t a direct play on those trends. It’s not Qualcomm (NASDAQ:QCOM), whose chips will power 5G-enabled smartphones. It’s not a biotechnology company that will develop new life-saving therapies.
But V stock will benefit from those developments. It’s a play on the global economic growth those innovations will drive. In fact, it’s an amplified play on that growth.
As economic activity rises over time, by definition so too will payments. And the share of those payments taking place through the Visa network will increase, too.
We are moving, quickly, toward being a cashless society. In developing countries, credit card market share is climbing at an even faster rate. That’s why Visa has focused so intently on markets like China and India.
And so Visa’s growth should be (roughly) equal to global domestic product (GDP) growth plus the gained market share for credit and debit card payments: a “GDP-plus” rate. I expect both components of that growth to be positive for years, and likely decades, to come.
V Stock Is Too Cheap
GDP growth is going to take a short-term hit. It may even be negative for two or three quarters — or the entirety of 2020.
But, again, investors have to take the long view. Visa is better-positioned than most companies to weather short-term disruption. Its fixed costs are low, which protects profit margins. Its debt is minimal, just $17 billion at the end of 2019 against a market capitalization still near $350 billion.
And when global growth resumes, it may be explosive. Consumers and businesses alike will play catch up with their spending. Technological innovation will continue. Economic growth may pause, but it’s not ending.
Visa is going to benefit from that growth. Yet V stock is not priced as such. The stock trades at just 30x Wall Street’s earnings per share estimates for fiscal 2020 (ending September). Those earnings, of course, are going to be depressed by short-term factors. Shares are even cheaper relative to its “true” earnings power.
For a company that is growing earnings at a double-digit clip already, and will do so for years to come, that’s simply too cheap. It’s an opportunity for investors willing to stay patient — and stay calm.
Are There Other Plays?
It’s worth mentioning that Visa stock is not the only quality name that has sold off. It’s not even the only stock I’ve recommended on the dip. I’ve highlighted Facebook (NASDAQ:FB) and Luckin Coffee (NASDAQ:LK) in recent days.
Investors might look to pure plays as well, whether it’s QCOM in 5G or a stock like Nvidia (NASDAQ:NVDA) in artificial intelligence. Aggressive traders could see value in the energy sector, which has been hammered. As I wrote in the context of Chesapeake Energy (NYSE:CHK), however, I believe that industry is on the wrong end of a megatrend.
As always, investors need to do their own due diligence and assess their own risk tolerance. Some will see bigger value elsewhere. And it’s possible, and likely, that some of those stocks will outperform Visa stock going forward.
Some won’t, however. That’s what diversification is for. And regardless of how other stocks perform, V stock should be considered a cornerstone of an equity portfolio going forward.
After all, in a volatile market, it can pay to keep it simple. Visa is one of the best companies in the world. It has among the highest profit margins of any company in the world. And its stock has dropped 25%, to a more-than-reasonable valuation, based on short-term fears.
In other words, V stock is exactly the kind of stock investors should be looking for as they take advantage of this selloff.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.