Please ensure Javascript is enabled for purposes of website accessibility

3 Reasons MasterCard Stock Could Rise

By Dan Caplinger - Feb 16, 2016 at 3:04PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The No. 2 card network has done well, but things could get even better for shareholders.

Image source: MasterCard.

Investors in MasterCard (MA 0.88%) have earned solid returns in the nearly 10 years since the company's initial public offering, and despite ongoing fundamental strength, some investors believe the stock is overdue for a correction. Yet MasterCard still has plenty of good things going for it, and there are reasons to believe shares could climb even from current levels.

Let's look at a few reasons MasterCard shares could rise in 2016.

The dollar has stopped its ascent
MasterCard has faced a major headwind from the weakness of foreign currencies compared to the U.S. dollar. MasterCard has done a masterful job of promoting its business overseas, posting double-digit gains in local-currency terms on key metrics. Yet the dollar's strength has made MasterCard's overseas revenue and profits translate into fewer dollars, and that has punished the company's reported sales and earnings growth.

So far in 2016, the dollar has given back some of its gains. The euro has strengthened by about 3% to 4%, and gains in the Japanese yen have been even more substantial, at roughly 5% to 6%. Not all currencies have enjoyed the same bump, but even a flat performance would provide a welcome respite from the dollar-driven declines MasterCard has suffered.

American Express continues to struggle
Competition in the card-network space has always been tough, but MasterCard has held up far better than some of its rivals. American Express (AXP 1.28%) has continued to struggle, giving up a quarter of its value just since mid-December. AmEx is dealing with the loss of major deals with co-branding partners, and that has forced the company to make further restructuring efforts to cut costs and retrench as it tries to pick up new business elsewhere. Even with a big one-time gain likely when it sells off card-portfolio assets, American Express nevertheless faces a turning point in its history.

MasterCard stands to benefit from any loss of confidence in the American Express brand. By ramping up efforts to try to make co-branding partnerships of its own, MasterCard can both make the most of American Express' troubles and hold off other competitors from making market-share gains. That potential win-win is too good for MasterCard to pass up.

Global economic strength from consumers
Economists have gloomier projections about the fate of the global economy for 2016. Low commodity prices are wreaking havoc on the prospects for countries that rely heavily on natural resources for their well-being, and countries that typically consume those commodities project slower growth despite their increased availability.

For MasterCard, though, there's reason to anticipate a potential silver lining from these economic woes. Consumers have gotten massive cash infusions from lower gasoline prices, and that has provided them with more discretionary income to spend. Moreover, rising home prices have given Americans more confidence about their economic futures, and that could spur greater willingness to take on debt after a long deleveraging of the national consumer economy. Greater credit activity works in MasterCard's favor, and similar potential around the world could also bolster its international prospects.

MasterCard investors shouldn't get greedy, especially given the immense success they've had over the years. Nevertheless, MasterCard does have the potential to stay on track and sustain the positive momentum that has turned it into a successful growth stock for nearly a decade. In particular, if these three things work out in MasterCard's favor, then the card giant's stock could produce further strong returns for investors.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

American Express Company Stock Quote
American Express Company
$140.40 (1.28%) $1.78
Mastercard Incorporated Stock Quote
Mastercard Incorporated
$318.24 (0.88%) $2.76

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.