We recently published a list of 10 Best Stocks to Buy for the Long-Term According to Charles Akre. In this article, we are going to take a look at where Mastercard Incorporated (NYSE:MA) stands against other best stocks to buy for the long-term according to Charles Akre.
“Above-average returns at below-average risk” is the mantra that defines Charles Akre, one of the most successful asset managers on Wall Street. As the founder of Akre Capital Management, he is a celebrated value-oriented investor. He is best known as a collector of great business, which he has invested in for many years to generate optimum value.
His dedication to long-term planning and systematic valuation has consistently yielded exceptional results. Akre’s investment portfolio has generated more than 300% returns over the past ten years.
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He has become one of the most successful investors focusing on an investment philosophy dubbed the “three-legged stool” approach. The investment approach advocates for examining business models’ rates of return and reinvestment opportunities before investing. Likewise, Akre advocates investing in companies with enduring competitive advantages, robust balance sheets, and long-term earnings growth prospects.
Unlike most investors focusing on market trends, Akre’s philosophy focuses on finding companies trading at fair value. By avoiding popular stocks, the value investor has succeeded in concentrating on cheap opportunities that most investors often overlook. He also adopts a strategic approach that goes beyond buying and holding stock for the long term.
Instead, Akre consistently evaluates the core business strengths and fundamental aspects of companies. His focus on “outstanding businesses” indicates that he has carefully considered factors like competitive advantage, growth potential, and top-notch management. Consequently, the best stocks to buy for the long term, according to Charles Akre, are companies well poised to navigate short-term market fluctuations. Similarly, they are companies that capitalize on long-term compounding effects.
In contrast to passive index investing, Akre’s approach necessitates active monitoring of a company’s performance to ensure that it maintains the standards of an exceptional business. Having a thorough understanding of the management team, business operations, and industry dynamics is also essential.
The value investor also advocates for diversification as one of the ways of spreading the risk and shrugging off market volatility. Therefore, Akre Capital Management’s portfolio is spread across technology, financial services and other sectors. While the overall market has been trending over the past year, resulting in overstretched valuations, Akre believes there is still value to unlock. Nevertheless, he expects the financial markets to remain volatile.
“…The US stock market and quite likely the markets of Western Europe can continue to be very volatile as they respond to good news and bad news, which will pop up on a regular basis. From my perspective, this is actually good news-that kind of volatility will increasingly give us opportunities periodically… Therefore, markets can go up even when economic activity has not picked up. But my expectation is a fair amount of volatility for some time,” said Charles Akre.
Our Methodology
To compile our selection of the best stocks to buy for the long-term, according to Charles Akre, we began by analyzing Akre Capital Management’s 13F portfolio and chose to highlight the stock holdings that have remained within the portfolio for at least 5 years. Next, we assessed the number of hedge fund investors associated with each stock as of the end of the third quarter of this year. Finally, the stocks were ranked in ascending order based on the value of Charles Akre’s stakes in the companies.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A woman using a payment terminal at the checkout of a store showing payment products and solutions.
Mastercard Incorporated (NYSE:MA)
Akre Capital Management’s First Major Purchase: 2010
Akre Capital Management’s stake value: $1.94 Billion
Number of Hedge fund holders as of Q3: 131
Mastercard Incorporated (NYSE:MA) is a technology company that provides transactions, processing, and other payment-related products and services. It has about 3.4 billion credit cards in circulation and 150 million accepted by merchants worldwide. Consequently, it boasts of a solid revenue base that generates solid recurrent revenues on transaction fees.
As interest rates around the world come down, borrowing costs should drop, resulting in significant improvements in consumer purchasing power. As more people resort to shopping and making payments away from cash, the Mastercard stands to be one of the biggest beneficiaries.
Mastercard Incorporated (NYSE:MA) is already up 26.31% year-to-date and is trading near all-time highs. The stellar performance has to do with investors reacting to the company’s robust financial performance year to date. Its revenue has been up by about 17% over the past 12 months, and it has been benefiting from continuous innovation and expansion in the digital payment space.
Additionally, Mastercard Incorporated (NYSE:MA) has benefited from strong cross-border volumes, resilient consumer spending and diversification. Revenues from services and solutions contributed to 37.5% of total revenue in the first nine months of the year, which was up from 37% in 2023. Likewise, net revenues rose by 14% in the third quarter, and adjusted income grew by 13%.
Mastercard Incorporated (NYSE:MA)’s operating margin has already risen to 55%, demonstrating the company’s ability to maintain profitability. Its profit margins should receive a significant boost as card payment volume is poised to grow by 9% between 2025 and 2027, excluding China.
Conventum – Alluvium Global Fund stated the following regarding Mastercard Incorporated (NYSE:MA) in its Q3 2024 investor letter:
“We have discussed over the last couple of years our evolving investment process to become increasingly focussed on quality. In June 2022 we undertook the first step of that process – making changes to our quantitative screen. Specifically, we loosened the requirements with regard to traditionally measured “cheapness” (how the business is priced relative to its past earnings) and tightened the “quality” criteria (the returns the business has generated relative to capital employed in the past). Both Mastercard Incorporated (NYSE:MA) and Visa have remained in the screen since those changes were introduced. Our initial, somewhat rudimentary analysis, concluded that these businesses were just way too expensive for us. However, we revisited this more recently and we now concede that we failed to appreciate the value associated with such high quality businesses.
Visa (originally known as BankAmericard credit card program) was founded in 1958 by Bank of America (BofA). It was the first card to offer consumers revolving credit. Mastercard (originally known as Interbank, then Mastercharge), was founded in 1966 by a group of Californian banks to compete with it. Not long after, BofA gave up control of the BankAmericard credit card program, and became the second credit card program offered by a cooperative of banks. The way these businesses evolved ensures alignment of interests, with their success dependent on banks all cooperating and agreeing to underwrite transactions. Visa and Mastercard simply developed, implemented and maintained data matching systems to facilitate the network. Fast forward to today, and Visa and Mastercard are the two largest credit card payment processors, with widespread acceptance, robust infrastructure, and extremely strong brand recognition. They have become essential intermediaries in the global payment ecosystem, benefiting from their extensive merchant and bank partnerships as well as consumer trust. Together they dominate payments processing globally (outside of China)…” (Click here to read the full text)
Overall, MA ranks 1st on our list of best stocks to buy for the long-term according to Charles Akre. While we acknowledge the potential of MA to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
