Try credit card stocks instead of Bitcoin for high returns with less risk. Here are the ones to buy.
How much cash do you have on you right now? If you’re like me, you probably don’t have much. Plus, when you buy something (aside from small items) you probably use a credit card or debit card because you don’t want to use up your cash and have to go to the ATM again. You’re not alone.
Cash is fading as the currency of choice. The world is moving rapidly in the direction of cashless transactions. In the U.S., about a quarter of all transactions are not even made in person and cash can’t be used. Cash is now used in only 39% of in-person transactions, according to a recent Federal Reserve study.
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According to the same study, about 30% of all U.S. transactions are cash. While cash still remains the single largest payment source, credit cards and debit cards together account for 48%. And the U.S. only ranks fifth among nations with the most cashless transactions. In fact, electronic payment volume exceeded cash transactions globally for the first time a couple of years ago.
The growing popularity of cashless transactions has given rise to crypto currencies like Bitcoin. Digital currencies provide a lot of the convenience of cashless transactions while retaining anonymity. And these currencies will likely continue to grow and gain traction in the future. But investing in them is like the Wild West. You can lose your shirt in a hurry.
There’s a safer and easier way to play the trend. In fact, you can do it with Dow stocks. Established blue chip companies are benefiting greatly from the proliferation of credit card and debit card usage and making money like crazy. Take a look at the ten-year returns of these boring old credit card stocks:
Credit Card Stocks, High Returns
| Visa (V) | 1,156% |
| Mastercard (MA) | 1,651% |
| American Express (AXP) | 536% |
The S&P 500 return over the same period was just 310%. A $10,000 investment in the market index ten years ago would be worth about $41,000 today, not bad. But a $10,000 investment in the above mentioned stocks over the same period would be worth $125,000, $175,000 and $64,000 respectively.
Those returns are insane for large companies like that; V and AXP credit card stocks are part of the Dow 30 index and MA is not. But that’s in the past. Still, the future for these credit card giants looks pretty good. Sure, there will be increasing competition from mobile apps and other payment methods. But there’s still plenty of opportunity to go around. About 85% of transactions globally are still conducted in cash.
Credit Card Stocks to Buy:
Visa (V)
Visa is king in the U.S. with a 51% market share of the credit and debit purchase volume, around 28% larger than the nearest competitor. But it is also huge around the world. In fact, the company generated 55% of its revenues overseas.
Visa is the largest payment processor in the world. It processed over $8 trillion in transactions last year and operates in 200 countries. Here’s the beautiful thing about Visa. It doesn’t loan money. It just collects a fee every time a card is swiped. There is zero concern about rising delinquencies in a declining economy. The company just rings the register every single time the card is used. My card is worn out. It almost melts from overuse.
Visa company continues to enjoy double-digit earnings and revenue growth with no end in sight. The one drawback is that the stock is a little pricey right now; it’s up over 33% already this year and it’s selling at valuations well above the 5-year averages with just a 0.57% yield.
Mastercard (MA)
Mastercard is no slouch either. It’s the second largest payment processor in the world, operating in 200 countries with over $4 trillion in annual purchase transactions. It has the same business model as Visa except it’s smaller. It has actually been outperforming Visa in terms of growth as its smaller size enables some leveling of market share.
Like Visa, Mastercard still has lots of potential growth opportunities throughout the world. This stock is already a little expensive, up over 44% already this year with lofty valuations and a low dividend.
The future is still so bright for these credit card companies that I believe you can buy them at any time. They also have strong momentum at this point. However you may not want to pay up for the credit card giants with the market at all time highs. That’s okay. V and MA are ideal stocks to target for buying in the next down market or bear market. At some point in the future, there will be a huge opportunity to pick up these juggernauts on the cheap. Don’t forget them.
American Express (AXP)
American Express is a different animal than Visa and Mastercard. The main difference is that Amex actually loans money. Customers maintain balances for their transaction and pay a considerable interest rate. The thing that separates Amex from other credit card companies is the elite quality of its clientele, who have the best credit risks and lowest delinquencies in the business.
Amex also generates fees every time the card is used. As well, it has tremendous relationships with corporations and their business travel expenses. The company has relationships with 60% of fortune 500 companies. It also has partnerships, most notably with Delta Airlines.
It’s an elite card that is known all over the world and is able to charge high fees. The business continues to grow at a solid clip. There is another major difference between Amex and Visa and Mastercard credit card stocks right now. AXP is cheap. Selling at just 15 times forward earnings, it’s cheaper than the overall market with a 1.25% yield. Although the stock is up over 30% so far this year, it still has room to run.
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