Ever since Visa (NYSE:V) and MasterCard (NYSE:MA) settled into life as public companies, I've contemplated whether they'll make superior investments. More often then not, I'm left skeptical.

The argument for buying is clear:

  • Both have tremendous growth prospects as global consumers shift to a cashless economy.
  • The two share a virtual duopoly on the industry. Competition outside of American Express (NYSE:AXP) and Discover (NYSE:DFS) is practically nonexistent.
  • Neither issues actual credit like Bank of America (NYSE:BAC) and JPMorgan Chase (NYSE:JPM) do. These are basically technology companies hiding in financial companies' clothes.

Still, I'm hung up on the argument against. Mainly:

  • Both stocks have traded at premium multiples. These aren't value plays.
  • Their moats are valuable insofar as the barriers to entry stay intact. I can't see how either has much brand appeal compared to the other, though; most people don't care which logo sits at the bottom of their card.
  • The consumer-spending trends that underscored the past decade are dead. Hopefully for good.

I'm torn. I don't want to be doubtful, but I am.

Negativity vindicated
Despite Visa's rock-solid performance, MasterCard's recent earnings only solidified my view. Fourth-quarter earnings came in at $1.84 per share, down 19% from the year before. Revenue increased 14%, yet total purchase volume grew just 3.4%. Global growth remains strong, but the U.S. market -- where almost half of volume presides -- continues to be a drag, falling 5.2%.

Even so -- here comes my indecisive side again -- MasterCard's long-term analyst earnings estimates (which should probably be taken with a grain of salt, of course) are pretty appealing. Have a look:

Year

2009

2010

2011

2012

EPS estimate

$9.88

$11.47

$14.13

$16.57

Data provided by Capital IQ, a division of Standard & Poor's.

With a share price of about $160, MasterCard is finally trading in a range that isn't pricing in exorbitant expectations. If the above earnings estimates are met, great! Investors will probably make a killing. If not (which I think is likely), all hope isn't lost. With shares down 50% since last summer, there's finally room for error.

Bottom line
Alas, I revert to the same feeling I've held for the past year: Both Visa and MasterCard are incredible companies, but I still can't justify paying these prices, even after they've come down this much. If forced to pick, I'd rather own MasterCard simply because I don't think either will meet expectations, yet Visa is still priced for perfection. If global consumer-spending trends follow the logical course of long-term pain, I have a feeling that patient investors will have the opportunity to buy these great companies at much better prices than can be had today. Be patient, Fools.

For related Foolishness:

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. JPMorgan Chase is a current and Bank of America is a former Motley Fool Income Investor recommendation. Discover Financial Services and American Express are Motley Fool Inside Value picks. The Fool owns shares of American Express and has a disclosure policy.