As an investor, there's absolutely nothing wrong with plugging into a basket of blue chip stocks and leaving it alone for a few years. In fact, that's probably the best plan for most investors. It's the effort to out-trade the market that often leads people to underperform it, after all.
If you just gotta take your shot at beating a benchmark like the Dow Jones Industrial Average, though -- and you have the patience to leave a stock alone even when holding it feels a little uncomfortable -- your best bet might well be to buy the stock of credit card company Visa (V 0.33%).
Seriously.
Visa offers what buyers increasingly want
It's not a name typically called out as a growth stock. Such stocks tend to be driven by technological leaps, drug discoveries, or perhaps new industrial processes. Facilitating payments between merchants and consumers isn't exactly a new, big idea.
And yet Visa is growing in a big way. The company's top line is on pace to swell by nearly 10% this year before accelerating more than 14% next year. Per-share earnings are projected to grow even more, extending a long-term expansion of its sales and profits. More of the same sort of growth is in the cards for the future, too.
Data source: Thomson Reuters. Chart by author.
This progress is reflective of two overarching themes. The first is that the addressable payments market is getting bigger. It might be a bit tough for U.S. consumers to believe, but credit and debit cards haven't been a way of life everywhere else. As countries become more developed, though, the rest of the world's consumers are adopting the same spending habits as in the United States.
Research outfit Technavio forecasts the global credit card payments market will grow at an annualized pace of nearly 7.7% through 2026, ending that year $147 billion bigger than it was as of 2021. Because the market is still highly fragmented, though, market leader Visa has a chance to add to its already sizable share.
The second theme: Cards are increasingly being used as an alternative to cash and checks, but there's still a great deal of cash and checks to be displaced.
The Federal Reserve Bank of San Francisco's annual Diary of Consumer Payment Choice shows that last year, 28% of all payments made within the United States were handled with a credit card, while 29% were made with a debit card; Visa monetizes both types. Each of those percentages tops cash's share of 20% and dwarfs ACH-based and mobile-payment app options.
More than that, though, the payment method breakdown extends trends that favor card-based purchases. In 2016, 31% of all payments were made with cash, while 27% were done with a debit card. A mere 18% were completed with a credit card.
The data nugget that should pique investors' interest: 20% of all purchases in the U.S. are still being made with cash despite its relative inconvenience.
While the proportions might be different in overseas markets, the broad trend is the same there.
And Visa is undoubtedly benefiting from this shift. The company reported 240.8 billion facilitated transactions during its recently ended fiscal 2022, up 12% from the prior year's tally, and 33% higher than pre-pandemic 2019's count of 180.4 billion.
As the adage goes, follow the money.
Undervalued, underestimated
A bulletproof investment? There's no such thing. Visa is subject to economic ebbs and flows as well as regulatory change. If you're going to need this capital in the foreseeable future, it might not be your very best bet right now.
If you have five or more years to work with, however, this Dow constituent is a great opportunity to beat the overall Dow Jones average itself. Spending never goes out of style; Visa is just making it easier for consumers and corporations to do it.
Recently, Visa stock was priced 23% below analysts' consensus target near $251 per share. And don't be surprised to see that target price pushed upward as the company continues to make progress.
