Do you fear stepping into a new trade after the stock has already soared? The worry isn't unmerited. Plenty of stocks have an annoying habit of tumbling following big run-ups. There are plenty of other stocks, however, that don't.
Credit card middleman Visa (V 0.33%) is one such name that -- despite its 36% advance from bear-market lows hit in late September 2022 -- has a great shot at tacking on even more gains. Here's a closer look at why you can still buy Visa stock and why you'd want to.
Two things would-be Visa shareholders need to know
You know the company. Visa is of course the United States' and the world's biggest credit card processing platform. Last quarter alone, Visa handled 54 billion card transactions. Those transactions generated $3.8 trillion worth of commerce and translated into $8.1 billion in revenue for Visa during the three-month stretch ending in June. The transactions were up 10% year over year and revenue was up 12%.
But the weakening economy? Or for that matter, the credit-lending market itself? Even if you don't sweat economic headlines too much, you still likely realize things are less than ideal right now.
Yes, prices are rising, the economy is sluggish, credit card balances are at record levels here and abroad, and not surprisingly, credit card delinquencies are rising fast. The Federal Reserve reports that credit card delinquency rates among working-aged adults in the United States are now back to levels last seen during the Great Recession stemming from 2007's subprime mortgage meltdown. If non-payment doesn't rattle Visa's bottom line, surely crimped consumerism will ... right?
Well, actually no ... for a couple of reasons.
The first of these reasons is a common misunderstanding of what Visa is and what it isn't. It's not a lender. It's strictly a payment middleman, managing a network of merchants, cardholders, and the underlying lenders often called "issuers." Its core business is simply keeping a small percentage of the total amount of every transaction it facilitates.
And that's no small detail. Delinquencies often precede outright charge-offs. Visa's not going to be the organization to eat those costs. It's the issuers/banks that will eventually suffer related losses.
Data source: StockAnalysis.com. Chart by author.
There's still some degree of risk, to be clear. That is, while Visa isn't on the hook for soured credit card loans, weak economies don't exactly inspire a great deal of consumer or corporate card-based spending.
Even that risk, however, is relatively modest -- the second reason not to worry too much.
While there may have been a time when credit cards were only used to make the occasional "splurge" purchase, that's not the case any longer. Credit and debit cards are effectively displacing the use of cash. Numbers from the Federal Reserve indicate that last year only 18% of payments made within the United States were cash-based versus 60% completed with credit or debit cards. That's a significant shift from 2014's breakdown when 40% of payments involved cash and 42% of them were done with a card. And this shift away from cash and toward cards is still in motion.
What gives? It's just easier to use plastic than paper and/or coins.
Innovation for the sake of innovation pays for itself
Perhaps the most compelling reason to step into a new position in Visa in the shadow of the stock's recent rally, however, is that -- even without knowing what the future of payments will look like -- it's preparing for that future.
They're called Visa Innovation Centers, and they do just that -- foster innovation within the payment industry. There are several of them peppered across the world, found and run regionally with their local markets in mind. For instance, its Africa Innovation Center serves as a fintech accelerator. It's already facilitated the launch of a small business card-acceptance solution and a digital wallet that works with any bank.
Visa is also delving into cryptocurrency even though it remains far from being mainstream. The card middleman has already partnered with dozens of crypto platforms to make it easier for individuals to spend their digital currency. In April, Visa's head of crypto Cuy Sheffield made a point of publicly pointing out the company was looking to hire engineers to "help us drive mainstream adoption of public blockchain networks and stablecoin payments."
Just this month, Visa and its Currencycloud arm unveiled a new platform making it easier to make and receive cross-border payments. This is no minor achievement either. Cross-border remittances can be quite complicated, not to mention costly. Finding simpler and cheaper solutions is a game-changing foray into a transaction market that the Bank of England believes will grow from 2017's $150 trillion to $250 trillion by 2027, jibing with an outlook from McKinsey.
It's not entirely clear where these and other innovation efforts are going, or even if all of them will survive. But it is clear that Visa is preparing itself for whatever the future holds.
Visa stock is built to be a long-term winner
Visa is not a completely bulletproof stock, for the record. This ticker suffered its fair share of setbacks, including a big one from last year. There's no reason to think these stumbles won't happen again.
These sell-offs, however, are usually short-lived affairs. They're eventually overcome with the stock bouncing back to even higher highs. Indeed, the prolonged rallies that drove gains past 36% since October 2022 are actually pretty common for this stock.
Bottom line? Don't let the recent rally deter you. Visa stock's current bullishness should be handily sustained by the way the world's use of money is evolving and the way Visa is evolving with it.
