Stock in Major Uptrend Could Break Out for Double-Digit Gains
Amid talk of a “fiscal cliff,” there is at least one bright spot on the U.S. economic horizon: consumer spending.
In October, consumer spending saw its largest gain in half a year, rising 0.8% from the previous month, while income growth notched up 0.4%. One company that should benefit particularly from a buoyant spending environment is global payment giant, Visa (NYSE: V).
While Visa certainly faces stiff competition, especially from archrival Mastercard (NYSE: MA), it currently is top dog in the electronic payment space. In 2011, more than 66% of all cashless transactions in the United States were through Visa.
Visa also has a strong presence internationally. Cashless transactions are becoming increasingly popular worldwide, helping the company achieve 12% international growth in the most recently reported third quarter. Visa’s goal is to generate at least 50% of future revenue from outside the United States.
As this two-year chart shows, the strong uptrend indicates traders are bullish on the stock:
Since Visa’s December 2010 low of $66.11, shares have more than doubled. The stock has been in a major uptrend since June 2011, and shows no sign of slowing down. Shares recently broke a small shelf of resistance near $136.93, which acts as current support, bullishly completing a small ascending triangle formation.
Last week, the shares broke out above $135 resistance, hitting an all-time high of $146.41. The stock has since retreated slightly, presenting a potentially profitable buying opportunity.
The bullish technical outlook is supported by strong fundamentals. For 2012, analysts expect revenue will jump 11%, to $11.5 billion, from $10.4 billion last year. Holiday spending — which many people put on their Visa cards — should help drive anticipated growth. For the first quarter of 2013, analysts project revenue will increase 10.7%, to $2.9 billion, from $2.6 billion in the comparable year-ago period.
The earnings outlook is similarly strong. Due to increased worldwide transactions, analysts expect full-year 2012 earnings will rise nearly 17% to $7.23 per share, from $6.20 last year. As global transactions continue to grow, first-quarter 2013 earnings are projected to climb 12.5% to $1.80 per share, up from $1.60 per share in the year-earlier quarter.
In addition to a strong fundamental outlook, the company has a clean balance sheet. Visa has $2.8 billion in cash and no long-term debt. In the most recently reported third quarter, the company spent $324 million to repurchase 2.5 million shares. Another share repurchase program of 1.5 million shares is planned.
The company also offers a $1.32 per share forward annual dividend, which works out to about 1% per share. Management has consistently increased the annual payout every year since the company went public in 2008.
Given the bullish technical outlook, supported by strong fundamentals, I plan to go long on the global payment company.
Risks to consider: Store-specific mobile payment applications, through devices like smartphones, are becoming more popular. For example, you can now go to Starbucks (NASDAQ: SBUX) and purchase your coffee through your mobile phone, via an electronic payment system called Square Wallet. Visa will need to respond to this competitive threat to remain healthy in the future. However, the company does currently offer some mobile payment options and should continue to progress in this direction.
Recommended Trade Setup:
– Place a buy stop order on V at $146.43, just above its recent high
– Set stop-loss at $135.91, slightly below current support
– Set initial price target at $176.30 for a potential 20% gain by mid-2013
–Melvin PasternakSource: TradingAuthority
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