"Buy Visa and the Visa June 80 calls," we told SC Trading Pit readers on April 28.
Six trading days later, the stock was up 18%. The option was up 180%. And we still see no reason to sell with a price target of $105.
Why sell?
It’s not a credit lender. It won’t take a financial hit from the mounting credit delinquencies or tumultuous write offs waiting at the doors of Discover, Capital One, and American Express. It, like MasterCard, only processes cards. It gets paid a transactional fee per swipe, and doesn’t have to worry that over the next 12 months defaults on credit cards will only rise.
When $6.3 billion was rung up in revolving credit debt in March, Visa took a fee from each transaction. And as cash-strapped consumers, whose incomes can’t keep up with inflation, turn to credit cards, the likes of Visa and MasterCard will see even more transactional fees.
Visa doesn’t worry that overdue payments reached their highest levels since November 2004. Though, those that saw more than 4% of loans fall into delinquency in February and March will, including American Express, Bank of America, Capital One, JP Morgan Chase, Citigroup and Discover.
MasterCard and Visa weren’t on that list because they only process cards. They’re smart enough not to issue credit.
Credit Lenders have More to Worry About
The Federal Reserve is moving forward with credit card industry regulation that would make in harder for lenders to raise interest rates, while giving borrowers more time to pay bills. If successful, the regulation could protect borrowers against late fees and stop lenders from making offers deemed to be deceptive.
But, says the banking industry, the move would be bad for borrowers. It could lead to even higher interest rates, if the regulation is finalized by year end.
As it stands now, the regulation would prohibit:
- Unfair time constraints on payments. Payments would not be considered late unless the borrower is given reasonable time to pay; 21 days for example.
- Assigning payments among balances with different interest rates, with lenders crediting payments to balances that have the lowest balances.
- Charging exorbitant fees when borrowers exceed credit limits.
- Double cycle billing, which calculates interest over a two-month period and can result in higher finance charges.
- Making deceptive credit offers.
And, "the proposal would address concerns regarding subprime credit cards by prohibiting banks from financing security deposits and fees for credit availability (such as account-opening fees or membership fees) if charges assessed during the first 12 months would exceed 50 percent of the initial credit limit," according to this report from the Federal Reserve.
Again, Visa and MasterCard do not extend credit. They only process cards.
Listen, if you want to make money in this market, continue buying MasterCard and Visa. Short Capital One, Discover, and American Express.
Or, if you want a safer "backdoor" bet on Visa, check out the First Trust IPOX-100 (FPX). SC Trading Pit readers are up 7% on FPX in about 12 trading days.
Take care,
Ian L. Cooper
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In case you missed our other investment opportunity highlights, here’s what we covered in Wealth Daily, Gold World, Energy and Capital, and your free blogs for the week of May 5, 2008.
The Marcellus Shale Formation: The Rush to Big Natural Gas Profits
That’s why 175 landowners showed up in a meeting yesterday in Whitney Point, New York to discuss exactly how to deal with the energy companies that have suddenly shown up on their doorsteps looking to lock up their land in search of natural gas. The message at the meeting, however, was quite simple…
Wave Energy Stocks: How to Harness the Wave Energy Revolution
Since the passage of Washington State’s renewable portfolio standard, requiring 15% renewable energy in the mix by 2020, there has been what some are calling a ‘land rush’ on the Puget’s waters.
Rockefeller vs. ExxonMobil: Peak Oil: A Turning Point for Big Oil
Last Thursday, in my second appearance on Fox Business, Neil Cavuto asked me whether or not I thought it was a good idea to tax the "windfall" profits of Big Oil, and let Congress spend them on alternative energy.
Organic Photovoltaics: The Next Evolution Of Solar
In the past, we’ve discussed potential moves in the field of organic photovoltaics. This is what many researchers are looking to as the next evolution of solar. But after attending the Organic Photovoltaics conference in Philadelphia last week, I suspect it might be some time before we see any solid plays in this area.
The Media is To Blame for Housing: Why buy a house now?
"The financial press is worried that they might have gone too far – paralyzing the nation into recession by piling on housing. So they’re finally beginning to question the indexes where they get their data, and whether the news is really as bad as it seems. Slowly but surely, headlines are changing from Don’t Buy A Home Now to Is It Time To Buy? Stop listening to the media. Go buy a home."
David Lereah Comes Clean: Ex-Shill Calls for More Pain
Lawrence, by the way, has done a marvelous job in Lereah’s absence, promising on every occasion that now is the right time to buy real estate. Go figure.
Emerging Market ETFs: 2 "Must Own" ETFs Right Now
Eight years into Chen Shui-ban’s Taiwanese tenure, the benchmark index barely moved, even as Hong Kong’s market rallied 75%, and as Shanghai’s nearly doubled. But things are about to change, in a big way as we get close to May 20, 2008.
Copper and Gold Stocks: Exeter Resources Returns 719 Meters Grading 1.0 g/t Gold and 0.38% Copper
Many investors are surprised to learn that large copper mines often recover considerable amounts of gold and other metals as a byproduct of operations. This gold often generates hundreds of thousands of dollars per day in gross cash-flow for public copper production companies, making them copper and gold mining stocks.
Even though we’re bullish heading into the May 12 extension date, we’re playing this one safe.
Russian Renewable Energy: Russia: The "Sleeping Giant" of Renewable Energy
You may know that Russia is the kingpin of the international natural gas trade. But did you know that with over 10 million residents still off the grid and leaders aiming to maximize gas exports, Russian renewable energy could be a huge boon to the country? Now we have to convince the Russians-starting with their new president.
