Warren Buffett is often cited as one of the world's greatest investors. With his work at Berkshire Hathway (BRK.A 0.14%) (BRK.B +0.11%) over his long career, it's clear he has a great ability to pick stocks. As a result, many investors follow his moves closely and examine his portfolio for stocks that may be worth purchasing.
One company in his portfolio that I've got my eye on is the credit card company Mastercard (MA 1.84%). Mastercard is often seen as a duopoly with Visa (V 1.67%), which Buffett also owns. But there's a reason why Mastercard looks like the better buy right now.
Mastercard is more focused on international opportunities
Both Mastercard and Visa are card issuers, but the real value of having these companies in your wallet is the payment processing network. Whenever a card is swiped, these two authenticate and request authorization from the issuing bank on whether or not the consumer can complete the transaction. For their services, the companies charge a small fee, which provides a steady revenue stream.
NYSE: MA
Key Data Points
Because this model is similar to a toll booth, it falls neatly into Buffett's investment philosophy. Many investors (like myself) choose to own both Visa and Mastercard, but there's a reason why Mastercard might be the better long-term investment.
While Visa is more prominent domestically, Mastercard is nearly even with Visa worldwide.
| Location | Mastercard Payment Volume | Visa Payment Volume |
|---|---|---|
| U.S. | $717 billion | $1.572 billion |
| International | $1.550 billion | $1.594 billion |
| Worldwide | $2.267 billion | $3.166 billion |
Data source: Mastercard and Visa. Note: Values for payment volume are for the quarter ending June 30, 2023.
With about two-thirds of Mastercard's revenue originating from an international source, it is heavily leveraged to economies outside the U.S. While this may seem like a risk, it isn't. For the most part, the switch in payment method from paper to plastic is nearly complete in the U.S., so there are only incremental gains to be made (Mastercard's U.S. payment volume rose 5.6% in the second quarter). Outside of the U.S., this is far from the case, so there are currently more opportunities for Mastercard outside our borders.
Mastercard's high exposure to international markets will allow the company to grow faster than its counterpart solely due to its revenue makeup. This played out during the second quarter, as Mastercard's payment volume rose 12% globally versus Visa's 9% rise.
With more growth ahead for Mastercard, it seems like the better buy. But there is another matter to keep in mind.
The market isn't blind to Mastercard's future
Because the market knows Mastercard's future is brighter, it has given the stock a higher premium than Visa.
V PE Ratio data by YCharts
Furthermore, at 39 times earnings, Mastercard looks quite pricey for a typical Buffett stock. That's not the full picture, as Mastercard's profit margin is greater than 40%, which few companies can achieve. As a result, it earns a premium over other investments because of its ability to easily transform revenue into profits.
Mastercard is a great business to buy and tuck away in a portfolio. While the stock is expensive, it always has a premium price tag attached to it, yet investors have done tremendously well just buying and holding the stock (Mastercard's total return is 95% versus the S&P 500's 67% rise over the past five years). Even though Buffett hasn't purchased any shares in a while, he still holds on to his position with Mastercard, which is a clear indicator he believes in the business.
