Wednesday, September 01, 2010

Mastercard (MA) Notes and Chart

By Steve Cook
All American Investor

Mastercard (MA)is a global leader in electronic payments serving as a processor, franchisor and advisor to approximately 25,000 financial institutions for their credit, debit and other payment programs. In addition, it manages a family of payment card brands.

MA does not extend credit; it simply acts as a toll collector and is paid on both transaction volume and dollar volume. The company earns in excess of a 25% return on equity and has grown profits from $1.76 in 2004 to $11.16 in 2009 and its dividend from $.09 in 2006 to $.60 in 2009. While the pullback in global consumer spending will likely result in fall in the gross dollar volume of transactions, growth should nonetheless continue as a result of:

(1) an aggressive cost reduction program,

(2) an increasing percentage of purchase transactions paid for by credit and debit cards

(3) MA expands outside the US,

(4) addition of new value added services.

Mastercard (MA) is rated A++ by Value Line, debt accounts for only 1% of its capitalization and its stock provides a .3% yield.

Note: MA stock made great progress off its March 2009 low, easily surpassing the down trend off its June 2008 high (red line) and the November 2008 trading high (green line). In May of this year, it broke that up trend but quickly found support which has held during the recent volatility. The straight blue line at the bottom of the chart is the lower boundary of a trading range dating from 2008. The wiggly red line is the 30 day moving average. The Aggressive Growth Portfolio owns an 85% position in MA. It is currently on the Aggressive Growth Buy List--the upper boundary of its Buy Value Range is $215. MA’s Sell Half Price is $317.

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Steve Cook earned an MBA at Harvard and did post graduate work in economics and financial analysis at New York University. He earned his Chartered Financial Analysts designation in 1973. Steve has 40 years of investment experience including institutional portfolio management at Scudder Stevens and Clark and Bear Stearns. He managed a risk arbitrage hedge fund and an investment banking boutique specializing in funding second stage private companies. Steve now manges Strategic Stock Investments which focuses on wealth building through strategic investments.

Original content Bob DeMarco, All American Investor