Visa Inc. (NYSE:V)‘s fiscal third quarter earnings results have toppled Wall Street’s expectations. The third quarter revenues of the credit card company came in at $3.52 billion, well above the $3.36 billion in revenues projected by analysts. Investors responded to the news by sending Visa’s shares up by over 4% in trading yesterday. The quarterly results outperformed the results from the same quarter of last year, with an increase of 24.79% in profits, mainly due to increased payment volume, a realized tax benefit of $280 million, and lower new client incentives. The company’s earnings per share came in at $0.69 for the third quarter, up from $0.54 in the same period of last year. Earnings also beat analysts’ estimates of $0.59 per share.
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Visa Inc. (NYSE:V) is a payments technology company, engaged in operating a processing network, VisaNet, which facilitates the authorization, clearing, and settlement of payment transactions across the world. Customers spent a total of $1.2 trillion on its network during the quarter, up by 11% year-over-year. The operating expenses of the company also rose by 11% compared to the third quarter of 2014. Interestingly, though payment volume in the U.S rose by 8.7% year-over-year, Visa CEO Charles Scharf said that the company has seen “very little improvement with the U.S. consumer in our numbers thus far, if any.” Year-to-date returns of the company are 14.17% compared to its main rival Mastercard Inc (NYSE:MA), whose year-to-date returns are 11.22%.
The earnings beat meshes with the bullishness of the smart money tracked by Insider Monkey. At the end of the first quarter, a total of 93 of the hedge funds tracked by Insider Monkey were long in this stock, with total holdings valued at $7.99 billion. That was up from 88 funds with positions valued at $6.77 billion at the end of 2014. As shares were down slightly during the first quarter, the 18% increase in capital invested by funds was made entirely through purchasing more shares. This indicates that funds were optimistic about the growth of the company.
Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activity. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds partly underperformed because they aren’t 100% long. Hedge funds’ fees are also very large compared to the returns generated, which reduces the net returns delivered to investors. We uncovered through extensive research that historically, hedge funds’ long positions in certain stocks actually outperformed the market greatly, and it has held true to this day. For instance, the 15 most popular small-cap stocks among funds has beaten the S&P 500 Index by more than 80 percentage points since the end of August 2012. These stocks returned a cumulative of 139.7% vs. 58.7% for the S&P 500 Index (read the details). That’s why we believe investors should pay attention to what hedge funds are buying, particularly in the small-cap sector, rather than what their net returns are, which the media primarily focuses on.
Likewise, other research (not our own) has shown tracking insider purchases is also effective method for investors that lead to greater returns. That’s why we believe investors should pay attention to what hedge funds and insiders are buying and keep them apprised of this information. Looking at Visa Inc (NYSE:V), there have been no insider purchases of the stock this year, but there have been a few insider sales. Vice Chairman of Risk & Pub Policy at Visa Inc, Ellen Richey sold around 12,751 shares and EVP & Chief Brand Officer Antonio Lucio, sold around 3,438 shares this year.
Let’s now check out the key hedge fund action encompassing Visa Inc. (NYSE:V).
How have hedgies been trading Visa Inc. (NYSE:V)?
According to our database, Fisher Asset Management, managed by Ken Fisher, holds the most valuable position in Visa Inc. (NYSE:V). Fisher Asset Management has 14.32 million shares, comprising 1.9% of its 13F portfolio. On Fisher Asset Management’s heels is Warren Buffett’s Berkshire Hathaway, which has 9.87 million shares; the holding company has 0.6% of its 13F portfolio invested in the stock. Other hedgies that hold long positions consist of Paul Ruddock and Steve Heinz’s Lansdowne Partners, with 12.66 million shares, and Stephen Mandel’s Lone Pine Capital with 9.51 million shares.
It is due to the positive growth of Visa Inc, that many hedge funds increased their positions by more than double during the quarter. Renaissance Technologies, managed by Jim Simons, added 4.28 million shares to his holding, an increase of more than 1,000%, while Ken Griffin’s Citadel Investment Group increased its position by 1,545% to 6.01 million shares. The funds with new positions in the stock included John Armitage’s Egerton Capital Limited, and Peter Muller’s PDT Partners.
Given the very positive sentiment from the best money managers in the world, including Warren Buffett, and the subsequent strong performance of the company, we believe a long position in Visa is a good investment.
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