Cash in on the Growing
Popularity of Credit Cards with Verifone
(PAY)
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By: Mike Cintolo
Editor
Cabot Top Ten Report
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Published:
October 26, 2007
How would I describe my own investing
style? Generally speaking, I practice many aggressive-type traits --
fully invested with fewer than ten stocks, make use of margin at
times, and so on.
However, I'm also wary of big swings in my account -- something that
usually comes with aggressive-growth investing. So I tend to focus
on mid- to large-sized companies with plenty of trading volume
(often more than one million shares per day) and great growth
prospects. These are the names institutional investors tend to pile
into during a bull market.
I think one such stock is VeriFone Holdings (NYSE: PAY, $43.61),
which is benefiting from the same mega-trend as MasterCard (MA) --
more people are paying with plastic instead of cash, especially in
developing countries.
VeriFone is a play on the rising use of credit and debit cards
instead of cash, in both the U.S. and emerging markets. The company
is the leading provider of point-of-sale and wireless payment
systems -- when you swipe your card at a gas station or grocery
store, you're likely using a VeriFone system. Every year, a higher
percentage of payments are made with plastic instead of cash, and
that means higher demand for this firm's software and products.
Emerging markets are a huge opportunity, with many governments
promoting credit-based purchases, especially wireless ones (such as
taxi cabs taking credit payments, which, incidentally, they do in
New York and Philadelphia). An acquisition last year has rounded out
the product line, and has helped continue the company's string of
superb earnings results and lofty profit margins. It's not a barn
burner, but we think the stock will outperform the market.
The stock came public in April of 2005 and immediately put on a good
show for many months. But beginning this February, PAY built a long,
strong base, wearing out all the "weak" hands in the process. A
better-than-expected earnings report (revenues up +57%, earnings up
+50%) in early September sparked some high-volume buying, and that
was followed by a move to new highs late last month -- which came on
the heaviest volume the stock's ever traded!
Clearly, institutions, after quietly accumulating shares for a few
months, realize the cat's out of the bag -- they now have to pay up.
We believe they will, and that should lead to solid upside for
VeriFone's stock. Encouragingly, the stock held relatively firm in the recent
decline in leading stocks, another sign big investors are supporting
the stock on dips.
Mike Cintolo
Editor
Cabot Top Ten Report
About Mike Cintolo
[includes/bios/cintolo.htm]
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