Visa Inc (V) Power – Go Get It

The fourth quarter results for American Express were very disappointing. The company is trying to expand into mobile and savings accounts, and with the new partnership with Wal-Mart it hopes to capture more of the prepaid market. American Express has also introduced the first ‘pay-by-tweet’ service on Twitter, allowing cardholders to buy products by putting hashtags in their tweets that correspond to deals offered by AmEx. This move will increase its popularity significantly, and if the partnership is exclusive (the details of the deal aren’t out yet), American Express will likely benefit immensely.

Discover Financial has become one of the largest card issuers in the U.S. and still has room to grow, but the growth could be slowed as a result of higher advertising and marketing expenses coupled with competitive pressure from other credit card companies. The larger scale of operations and resources of competitors make them more attractive to customers, as they are in a better position to offer incentives and reward programs. If you already own shares of Discover then it’s a keep, but I wouldn’t recommend a buy as I see more opportunities in the bigger players.

Let’s Pick

There is huge potential for electronic payments to grow given the fact that almost 80% of payments worldwide are made in cash. A word of caution for some investors here: Visa is trading at P/E multiple of 44 times, way over the industry average of 24 times. This might look to be an expensive deal, but given the potential to grow this company could be a good long term bet.

MasterCard also trades near all time high levels currently, and like Visa, this company has a high growth rate. There are some things money can’t buy, but at these levels you definitely need some to buy shares of MasterCard. I would continue to hold but not buy it at these levels. Rather, at a forward P/E of 11, 20% cash flow yield (ttm), and ROE of around 20% (based on FY 2012), I would prefer American Express at current prices.

The article Visa Power – Go Get It originally appeared on Fool.com and is written by Shaleen Lohia.

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