Greg Abel became the CEO of Berkshire Hathaway at the start of this year. He didn't wait long to start making adjustments to the portfolio.
During the first quarter, the conglomerate exited its multibillion-dollar positions in Visa (V -0.97%) and Mastercard (MA -0.75%). These businesses, which were longtime holdings, were first purchased over a decade ago, when Warren Buffett was still CEO.
One man's trash is another man's treasure. Billionaire Bill Ackman's hedge fund, Pershing Square Capital Management, bought these financial stocks during the three-month period that ended June 30. These two companies are part of a portfolio that owns 15 positions in total.
When it comes to Visa and Mastercard, here's what history says investors should do.
Pershing Square Capital CEO Bill Ackman. Image source: Getty Images.
Two of the world's elite businesses
When two of the most-followed professional capital allocators have different views on two stocks, amateur investors can find it challenging to figure out who's right. Ignore these opinions for now. The cold, hard facts matter most. And Ackman's firm lays out a clear thesis for why Visa and Mastercard are two of the world's highest-quality companies.
Visa and Mastercard operate tollbooth business models that enable commerce to happen globally, earning tiny fees for processing transactions. They are capital-light operations that avoid taking on credit risk, while also benefiting from ongoing inflation. Consequently, profitability is incredible, with Visa (59%) and Mastercard (60%) posting stellar operating margins in their latest fiscal quarters that led to robust free cash flows.
Powerful network effects support their competitive positions. Visa and Mastercard "connect billions of consumers with hundreds of millions of merchants and thousands of financial institutions," according to Pershing Square's Q2 2026 shareholder letter. These ecosystems become better over time.
The hedge fund believes there is still significant growth potential. On a worldwide basis, Ackman's firm estimates that card-payment volume accounts for half of addressable consumer spending. This leaves ample opportunity to capture share from cash- and paper-based transaction methods, even in developed economies.
Value-added services, such as fraud prevention, cybersecurity intelligence, and merchant analytics, have become a major growth driver. Revenues here are rising at "two to three times" the rate of the payments operations, Pershing Square's research indicates.
NYSE: V
Key Data Points
Valuations and earnings growth are the key catalysts
Over the long term, stock prices are driven by two important variables: valuation changes and profit growth. Pershing Square believes these variables will lead to a winning outcome.
Based on internal forecasts from Ackman's team, Visa and Mastercard traded at forward price-to-earnings (P/E) ratios of 23 and 24, respectively, as of June 30. At that time, Visa's shares were 8% off their peak price, while Mastercard's share fell 14% from their record.
Earnings provide another notable tailwind. The hedge fund thinks Visa will report 16% annualized earnings-per-share growth over the next three to five years. The view is that Mastercard will do better, with an 18% yearly gain.
NYSE: MA
Key Data Points
These have historically been winning stocks
It's easy to convince investors that Visa and Mastercard are two of the world's best businesses. The key points already mentioned support this perspective. And the valuations these stocks trade at are still reasonable, even though they've both climbed since the end of Q2.
History says that investors should consider buying these companies. Since its initial public offering in 2008, Visa's share price has increased by 2,490% (as of Aug. 14). And since Mastercard went public in 2006, its shares have soared a jaw-dropping 12,280%. These financial stocks clearly have a proven track record of posting positive returns.
However, beating the market is an entirely different question. In the past five years, Visa and Mastercard have generated total returns of 56% and 57%, respectively, dramatically underperforming the S&P 500 index. It's difficult to accurately predict whether or not this trend will hold up in the future, although Pershing Square's portfolio has an opinion.
