Keep an eye out for bullish moves in MasterCard and Visa. Earnings estimates for the pair were raised by Morgan Stanley on the belief that they’ll “enjoy low single-digit or less annual growth in their spending for advertising and marketing.”
As we’ve said, if you must own a credit card stock, buy V or MA. They do not hold consumer debt. They simply process the cards.
Card companies like American Express on the other hand deals directly with credit. It has to worry that as of November 2007, credit card debt “soared at an 11.3 percent annual rate in November following an 8.5 percent rate of increase in October” and is still on the rise.”
Or take a look at companies like Capital One, where the stock fell 36% over the last 12 months. Sure, it may be tempting to bottom fish. But things are likely to get worse. Credit card delinquencies are on the rise, which could lead lenders to lend less, which could eventually hurt profits.
While delinquencies have yet to reach the heights of the 2001 to 2003 downturn, the Street does expect for it to happen later this year. It’s already forcing the likes of Capital One to increase loan-loss provisions on quarterly income statements, which can reduce profit.
Again, if you must buy a credit card stock or option, buy V or MA.
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