I do get a charge out of this column. Every week, I bring up a stock that I think is destined to tumble, then suggest three other stocks that I think will beat the market. This week, I'm giving credit where credit is due by ripping into a popular credit card giant.
Who gets tossed out this week? Come on down, MasterCard
Rhymes with "drastic"
MasterCard and its rival Visa
MasterCard simply sits back and collects its share of fees from the financial institutions and transaction processing. As "paper or plastic" becomes "debit or credit," MasterCard has been riding high.
Those days may be over now.
Paying customers to go away
This week, American Express
MasterCard isn't cheap. The stock may have been cut in half since its peak last year, but it's still trading at an earnings multiple in the high teens as we head into a difficult climate.
To MasterCard's credit -- pun intended -- the company has been a beast since it went public nearly three years ago, with a long streak of beating Wall Street's quarterly profit expectations. However, it's better to get out now before the disappointing trends catch up. That process may already have begun, since earnings and domestic purchase volume dipped during MasterCard's latest quarter.
No one will offer you $300 to bail on your MasterCard investment. You'll have to come to that conclusion on your own.
As I have every week, I don't talk down a stock unless I have three alternatives that I believe will outperform the company getting tossed. Let's go over three new fill-ins:
I'm no fan of eBay's namesake auction site, but I'm a big fan of its PayPal subsidiary. I wasn't surprised to see PayPal deliver double-digit growth this past quarter, even as eBay's namesake marketplace business suffered a 16% top-line slump. PayPal is becoming the world's micropayment platform of choice, and it may be eating into MasterCard's business, as more and more places begin accepting PayPal as seamlessly as conventional plastic.
Discount brokers have become efficient bankers. Sometimes they go too far; E*Trade
(NASDAQ:ETFC)paid the price as a mortgage originator after the subprime crisis hit. Still, they're popping up as attractive alternatives, offering healthy yields on savings and checking accounts and access to other financial products. Schwab does offer a credit card -- a Visa -- but it cleverly rewards users by rolling cash back rewards into its Schwab One brokerage account.
Can you imagine the flurry of activity on Bankrate's credit card pages this week, as American Express sends its worst accountholders pining for new plastic? Bankrate rakes in ad revenue, generating leads for hungry financial-services providers. Revenue soared 59% this past quarter, even if earnings couldn't come along for the ride. As the undisputed champ of interest rate listings, Bankrate will continue to benefit as the country tries to stimulate lending. One can always argue that MasterCard will benefit, too, but Bankrate is covered on all fronts, since it also draws in savers seeking high-yielding CDs and money market funds.
Other headlines from the trash bin:
eBay and American Express are Motley Fool Inside Value picks. Bankrate is a Motley Fool Rule Breakers recommendation. Charles Schwab and eBay are Motley Fool Stock Advisor picks. The Fool owns shares of American Express. Try any of our Foolish newsletter services free for 30 days.
Longtime Fool contributor Rick Munarriz isn't sure whether "paper or plastic" is a question for supermarkets, transactional preferences, or party plates, but he feels that you can't go wrong with paper on any of the three counts. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.