Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Think of V and MA as financial railroads (or money pipelines.) Over a long period of time, both of these companies have become enormous, global financial utilities. Yet, they have no credit risk. The banks take the credit risk, Visa and MA provide the network. People have endlessly discussed why doesn't Apple have a card, why doesn't etc. have a card? I think Apple is more than happy to ship money via someone else's financial railroad than take on the risk, cost and effort of building their own. What V and MA have can't simply be replicated with ease.
When you look at Visa's global network, which can process 10,000 transactions per second (1.8 billion account holders and 30 million merchants and ATMs, 100 billion transactions in 2009 and more every year since), it's really a matter of the lack of desire to build a similar financial pipeline, due to what would be considerable cost and effort. The only thing that Apple could really do is possibly buy American Express, but I don't think that's likely and I don't think that Apple wants to take on credit risk.) I believe Paypal and Square use Visa's network, as well.
If I'm Apple and I can get a little % of every transaction with not a whole lot of cost and effort, why not?
Additionally, aside from the considerable financial infrastructure, V and MA do have the branding going for them.
People talk about what will replace credit cards, but I think the discussion that's not happening is how much credit cards (Amex's Bluebird, the new Wal-Mart system with - I believe - Green Dot) will take customers away from basic banking as credit card companies are becoming increasingly aggressive about courting the unbanked/underbanked - their term, "financial inclusion."
Visa sees potential customers, as do Amex and the others. Amex's Bluebird offers basic banking services and the card/kit can be purchased at many places.
The retailers hate it, but if their only response is to build a mobile wallet (CurrentC) that no one is going to want because it means money is taken directly from their bank account (so security is an issue and they won't get credit card rewards, plus they have to give their drivers license and social security#.) The fraud protection aspect of CC's remains a definite appeal, especially with everything going on.
The fact that China is now opening up to MA and V and the other CC companies is a positive, although it will take some time. (China-issued CC's were UnionPay.)
Sometime down the road physical cash will probably go away, but I'm sure the credit card companies will probably figure a way to integrate themselves in that situation.
"Although ADM doing pretty well since failed acquisition. I missed that one."
I like Archer Daniels a great deal. I don't love the high fructose corn syrup and ethanol aspects of ADM, but I think their logistics business is exceptional, with great assets including 26,000 railcars - comparable to most class 1 railroads. They also recently purchased Wild Flavors, and I love the flavors/fragrances business - it's one of those fairly rare businesses that's everywhere and yet, people don't talk about it or think about it very much. Additionally, what takes the place of the science of taste and smell?
If you look at the flavor industry (http://www.leffingwell.com/top_10.htm), the top 4 businesses (one of which isn't public) have about 55% of the market share. The top 11 (only 4 of which are publicly traded) have 81% of the market. You basically have an industry that's highly concentrated and has been a lasting one with nothing that I can imagine on the horizon that will replace it.
So, you see ADM diversifying in an attempt to not be so tied to the volatility of the grain processing business. They also bought Specialty Commodities (http://www.specialtycommodities.com/) the other week.
Lastly, people think of ADM as an agricultural name, but it's kind of a blend of food processing company and ag company.
___________
All that said, would I add to either of these (V/MA or ADM) now? Probably not. V and MA haven't done well all year and were rather disappointing, then both have a good quarter and basically go vertical. I'd maybe add to oil names if I didn't already own a fair amount of them (including COP.) There's really not a lot I would add to right now.
Of course, now *after* the good quarter, you get the analyst upgrades.
"NEW YORK (TheStreet) -- Pacific Crest raised its price target today for Visa Inc. (V) to $305 from $241 and maintained its "buy" rating.
Amplified innovation lowers disintermediation risk of the global payments technology company, analysts said.
"We are more constructive on Visa's innovation strategy, which could boost transaction growth, generate new value-added services, and reduce disintermediation risk," analysts said, adding, "We think Visa is the best-positioned mega-cap payments name and are raising our multiple to 25x."
"Honestly think traditional credit cards will go the way of disk drives."
I think so too. Apple Pay is just the beginning of the end. Some places still use the old manual card stampers with copies you have to sign. Visa and MasterCard will be services in the end.
@JohnChisum: ""Honestly think traditional credit cards will go the way of disk drives." That's nonsense, just like the smartphone won't replace the desktop or laptop computer. Regards, Ted
Comments
Interesting to see an exit from COP and PSX, while establishing position in XOM.
From what I've seen, XOM is surprisingly less correlated with oil price than I would have thought. While APA, on other hand, is hyper correlated.
Hard to make money in agriculture, it seems. Although ADM doing pretty well since failed acquisition. I missed that one.
But Visa and MC....more intrinsic to American life than Apple.
Honestly think traditional credit cards will go the way of disk drives. But for now, to use Apple Pay, you must have a Visa or MC.
When you look at Visa's global network, which can process 10,000 transactions per second (1.8 billion account holders and 30 million merchants and ATMs, 100 billion transactions in 2009 and more every year since), it's really a matter of the lack of desire to build a similar financial pipeline, due to what would be considerable cost and effort. The only thing that Apple could really do is possibly buy American Express, but I don't think that's likely and I don't think that Apple wants to take on credit risk.) I believe Paypal and Square use Visa's network, as well.
If I'm Apple and I can get a little % of every transaction with not a whole lot of cost and effort, why not?
Additionally, aside from the considerable financial infrastructure, V and MA do have the branding going for them.
People talk about what will replace credit cards, but I think the discussion that's not happening is how much credit cards (Amex's Bluebird, the new Wal-Mart system with - I believe - Green Dot) will take customers away from basic banking as credit card companies are becoming increasingly aggressive about courting the unbanked/underbanked - their term, "financial inclusion."
Basically, An estimated 2.5 billion adults lack access to formal financial services—representing over half of
the world’s adult population. In 2012, an estimated 1.7 billion people will have a mobile phone but not a bank account.
http://usa.visa.com/download/corporate/_media/financial-inclusion-fact-sheet.pdf
Visa sees potential customers, as do Amex and the others. Amex's Bluebird offers basic banking services and the card/kit can be purchased at many places.
The retailers hate it, but if their only response is to build a mobile wallet (CurrentC) that no one is going to want because it means money is taken directly from their bank account (so security is an issue and they won't get credit card rewards, plus they have to give their drivers license and social security#.) The fraud protection aspect of CC's remains a definite appeal, especially with everything going on.
The fact that China is now opening up to MA and V and the other CC companies is a positive, although it will take some time. (China-issued CC's were UnionPay.)
Sometime down the road physical cash will probably go away, but I'm sure the credit card companies will probably figure a way to integrate themselves in that situation.
"Although ADM doing pretty well since failed acquisition. I missed that one."
I like Archer Daniels a great deal. I don't love the high fructose corn syrup and ethanol aspects of ADM, but I think their logistics business is exceptional, with great assets including 26,000 railcars - comparable to most class 1 railroads. They also recently purchased Wild Flavors, and I love the flavors/fragrances business - it's one of those fairly rare businesses that's everywhere and yet, people don't talk about it or think about it very much. Additionally, what takes the place of the science of taste and smell?
If you look at the flavor industry (http://www.leffingwell.com/top_10.htm), the top 4 businesses (one of which isn't public) have about 55% of the market share. The top 11 (only 4 of which are publicly traded) have 81% of the market. You basically have an industry that's highly concentrated and has been a lasting one with nothing that I can imagine on the horizon that will replace it.
So, you see ADM diversifying in an attempt to not be so tied to the volatility of the grain processing business. They also bought Specialty Commodities (http://www.specialtycommodities.com/) the other week.
Lastly, people think of ADM as an agricultural name, but it's kind of a blend of food processing company and ag company.
___________
All that said, would I add to either of these (V/MA or ADM) now? Probably not. V and MA haven't done well all year and were rather disappointing, then both have a good quarter and basically go vertical. I'd maybe add to oil names if I didn't already own a fair amount of them (including COP.) There's really not a lot I would add to right now.
Of course, now *after* the good quarter, you get the analyst upgrades.
"NEW YORK (TheStreet) -- Pacific Crest raised its price target today for Visa Inc. (V) to $305 from $241 and maintained its "buy" rating.
Amplified innovation lowers disintermediation risk of the global payments technology company, analysts said.
"We are more constructive on Visa's innovation strategy, which could boost transaction growth, generate new value-added services, and reduce disintermediation risk," analysts said, adding, "We think Visa is the best-positioned mega-cap payments name and are raising our multiple to 25x."
http://www.thestreet.com/story/12954643/1/visa-v-stock-up-today-after-price-target-raised-by-pacific-crest.html?puc=yahoo&cm_ven=YAHOO
I think so too. Apple Pay is just the beginning of the end. Some places still use the old manual card stampers with copies you have to sign. Visa and MasterCard will be services in the end.
Regards,
Ted