There is a conundrum happening on on Wall Street these days. Investor sentiment is on shaky grounds yet the S&P 500 broke records on Friday. This has been one of the strongest bull markets in history. However it seems like investors keep one foot out the door. This is causing some real pain in certain companies — Visa (NYSE:V) stock, for one. V stock has suffered from indiscriminate selling, but the pain is also sector-wide. Even the mighty Block (NYSE:SQ) lost almost 40% of its value since the summer highs.
There’s nothing wrong with Visa’s fundamentals, nor its sector. In fact, financial technology (fintech) stocks have some of the brightest futures available. The pandemic made it clear that the world urgently needs to have it financial processing be electronic. These services will be in demand for years to come.
In addition, we also have the cryptocurrency revolution unfolding. Even central banks are getting into that realm. There is little doubt that we will be using electronic funds, so the future for Visa is bright. While it is not the star of its industry, it is one of the top dogs, and it will last.
The World Needs Fintech
Demand on its services is also gaining ground from retail transactions that are migrating into cyberspace. The world is finally looking to digitize its finances. This is no longer a convenience but rather a necessity. The old dogs like Visa, MasterCard (NYSE:MA) and American Express (NYSE:AXP) are doing a decent job adapting.
It’s hard to shift focus on a massive scale. But eventually these large corporations will succeed, and Visa’s management seems up to the task.
V stock fell 25% from the summer high into the November lows. It has rebounded 12% off that bottom but it will now face new resistance. Therefore, technically the bulls will face tougher times going into the next few weeks. But this is part of normal price action. Savvy investors will not take it to heart.
V Stock Fundamentals Are Healthy
There’s nothing wrong with the fundamentals of this company. The financial metrics are still suggesting that management deserves the benefit of the doubt. Total revenues and net income have nearly doubled since 2015. There are no sign of deteriorating conditions like the stock price suggests.
In spite of that, Visa stock is not cheap — it carries a nearly 40 trailing price-earnings ratio. Although high, it’s not something that should cause worry. This is the going rate for its competitors except for Block, which is the oddball of the bunch. Visa has all the tools it needs to adopt its strategy to match the future trends.
My assumption is that they have a decade of clean runway ahead of them. So it’s a matter of timing entries into investments with a bit of smarts. Chasing it going into the summer was a mistake, same as was panicking out of it at $190 per share.
Support Should Hold With Markets
Technically that’s where the next risk lies but it won’t come from Visa itself. If the stock falls below November lows, it will risk losing another 10% from there. However that’s not likely to happen unless the whole stock market is also correcting.
Those already long the stock have no reason to add at this point. Someone looking to invest into it should only take partial positions to start just in case. Although this is not a clear overreach situation, it is not a dirt-cheap entry point either.
Investors will do better if they take their positions in tranches. This would leave room to manage the risk over time. The idea is to average in not average down. Of late when we have a string of bad days the experts start calling for tops. Negative rhetoric is a real threat to short-term stock prices.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.
