Think Credit Cards to Get Income

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Visa, Mastercard or AMEX: Which One is the Best Investment?

Most people don’t carry cash anymore, and when they do, they often still use a credit card or debit card to avoid another trip to the ATM. If this sounds like you, 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.

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:

  • 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.

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.

Let’s dive deeper into these three stocks:

Visa (V) is king in the U.S. with a 51% market share of the credit and debit purchase volume. In fact, Visa is the largest payment processor in the world. It 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. Visa company continues to enjoy double-digit earnings and revenue growth with no end in sight. 

Mastercard (MA) is no slouch either. It’s the second largest payment processor in the world, operating in 200 countries. 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. 

American Express (AXP) is a different animal than Visa and Mastercard. It also sells for less, but 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.

The future is bright for these credit card companies; 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.

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