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Why Mastercard Is a Great Buy Candidate for 2012

March 12, 2012 | About:

MasterCard (NYSE:MA) is music to many a person’s ears… like mine. So if you detect a personal bias when you read, you got it right. I love this company.

MasterCard (NYSE:MA) has a mission in this universe; it is a company that aims at adding value to its customers and partners and that includes individuals, banks, merchants, companies, businesses of all sizes and every other entity you can think of. It has taken the world beyond cash and created possibilities that cannot be seen by the naked eye. Of course, I am not a fan of debt. But if you have the discipline to pay off your card every month, this is the one for you. Safe, simple and smart payments are encouraged by MasterCard. I’ve tried Visa and Amex and this is the best.

It is not one of those credit card companies that try to rip off customers. What they promise is what you get. It gives enormous incentives. For instance, its President’s Choice Financial MasterCard in Canada is one of the best ever. Every dollar you spend earns you points and when you hit 20,000 points, you get $20 free in groceries and upwards from there on in. You earn points no matter where you shop. Its new and improved card gives you double the points at the Superstore. This is just a case in point that this card does what it says it will and actually translates into real savings for people.

I love how it is “green.” If you bring your own shopping bags with you and save on the plastic, it gives you bonus points. So, you use plastic to go green. That is quite a novel idea.

MasterCard has been one of the key pioneers in the money industry, facilitating and speeding up payments, and making commerce more secure. Obviously it has service in mind when it makes life so much easier for its customers, doesn’t tax them unnecessarily, and rewards them for being loyal to this company. It was founded as the Interbank Card Association in 1966, and as early as 1968, started networking with banks outside of the U.S. Since then, it has been one track record of successful venture after successful venture. Let’s look at some of its vital statistics.

Priced at about $418, this stock gives a surprisingly low dividend of $1.20 or a dividend yield of .3%. Well, maybe not so surprising, if you take a look at its growth figures. A growth company seldom gives dividend because it plows back earnings. Yet, wonderful company that MasterCard is, it is giving some dividend and that shows it cares about its shareholders. Its 52-week price range is from $241 to $428. Its three-month average volume has been 1,062,490. It has a market capitalization of $53 billion. Step right up for a hefty profit if you dare lay down so much per share. Its earnings per share are $14.85, its price to earnings ratio is 28.26.

Its chief competitor American Express (NYSE:AXP) which is, I will admit, not one of my hot favorites as it does mislead with some of its plans like its cash back card, has a market cap of $63 billion and, earnings per share being $4.12, its price to earnings ratio is 12.81. MasterCard’s operating margin is 52.13%, twice that of American Express which shows 21.85%.

Its five-year price/earnings to growth ratio is .98. Its profit margin is 35.83%. Return on assets is 23.47% and return on equity is 42.48%. Its quarterly year-on-year revenue growth is 27.3%. How awesome is this next piece of information? Total debt is zero. Hear that everybody that is lugging around boat-loads of debt? Thus there is no debt-equity ratio to speak of. How refreshing for me. And its current ratio is 2.17. American Express, on the other hand, priced at $52 approximately, has a debt of $65.64 billion as of the most recent quarter.

In terms of headlines, Mastercard was mentioned as one of many top-rated big cap stocks that had reached new highs. It is a highly liquid equity that can brag about its wonderful earnings and revenue growth which one would normally expect of smaller and more buoyant stocks.

More news. This from 2011. Credit card spending increased by 21%. MasterCard’s bottom line growth was 38%, giving investors 69.2% in total returns when the S & P 500 drew in only .9%. Banks everywhere are quivering in the face of the European situation, especially as regards sovereign debt: riding the crest of the online shopping frenzy are credit card companies in general, Mastercard in particular. Mastercard, the world’s second largest payment network next to Visa, is a winner on every front.

Growth figures are all as beautiful, in keeping with the overall picture of perfect health and thriving. Growth for 2012 is at 32.5%, for 2013 at 16.3%, the growth per annum of the past five years has been 40.8%, and for the next five years it is projected as 19%. This share is a Strong Buy to me, the first one I am calling in a very long time. Really feeling this.

Don’t hide your excitement: I sure am not. We might collide on our way out to get us some Mastercard.

About the author:

Buy low and sell high is easier in theory than in practice– and that’s where we come in.

At Investment Underground, our editors are disciplined, independent thinkers who will inform you when to buy undervalued investments, recognize catalysts, and sell when full value is realized. We provide timely, detailed analysis of our value investing strategies and help you achieve your goals of a reduced-risk trading environment.

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