Visa (NYSE:V) reported earnings last night and it popped on the headline. This on a day where Visa stock had already moved up 2% going into the earnings event. This morning investors are stepping back as V is down a little.
Source: Kārlis Dambrāns via Flickr Visa is a quality company which makes V stock one to hold for the long term. Small dips on headlines are not critical for the overall long-term investment. Those who need exposure to the financial sector should consider buying Visa stock.
This is not 2018. Last year, sentiment was terrible and markets could not maintain a rally. This was especially true for the financials and consensus was that they could not sustain rallies. But transactor companies like Visa, Mastercard (NYSE:MA) and even Square (NYSE:SQ) have the best of both world.
When financial stocks rally, V stock also rallies. But if the bank stocks like Bank of America (NYSE:BAC) fall, the transactors only fall in sympathy for a short while. Then they continue to move with the markets in general, not the banks.
So far this year the macro-sentiment has been the opposite of December. The Christmas crash, as bad as it was, did flip the switch. Thus far, the bears have failed this year.
Case in point: last night, Facebook (NASDAQ:FB), which is a stock that has many haters, spiked 9% on their earnings headline. Sellers couldn’t even materially hurt a controversial stock like Tesla (NASDAQ:TSLA) who faces a slew of serious challenges.
So, unless things change again, I expect the bulls to remain in control. The macroeconomic conditions are still strong in spite of a few pockets of weakness. Overall, companies are delivering strong P&Ls. So shorting here makes little sense.
Trading Visa Stock
I am already long American Express (NYSE:AXP) and profitable with it. But Visa stock is another one I’d buy here. This would be a trade I can hold for years.
My approach to this also has short-term opportunity. Technically, V stock has been trading in a tight range for January. And coming into the earnings event it was trading just below a potential breakout line. When that happens, a breakout from a tight range usually over shoots in that direction once the limit is breached.
In this case, if Visa can rise above $140 per share it can invite more buyers. The upside target could then target the $150 zone. There are a few spots of potential resistance along the way. First at $141 and $142.20 per share which were failure levels on December 12th and 7th respectively.
Then, there is a bigger pivot point at $145.75 which was an important island reversal on December 4. Breaking out of that one can really heat the rally up. Will there be dips? Likely. But in the long run, if the markets are higher then so is Visa stock.
Investors aren’t going to regret buying shares at this valuation over the years. Visa sells at a 33 price-to-earnings ratio which is in line with MA but much cheaper than PayPal (NASDAQ:PYPL) which sells at 50 P/E and SQ who still loses money. Only AXP is cheaper from that perspective.
The Bottom Line for Visa Stock
I believe that from here, the blindside is to the upside for Visa stock. Meaning the likelihood of an upside surprise is far greater than a trap door. Consider the fact that the resolution to the China/U.S.tariff standoff could include an open door to Visa and its competitors to enter the Chinese markets unrestricted. If that happens, then the upside is massive.
The analysts on Wall Street agree. They almost uniformly rate V stock as a BUY yet it is still trading much lower than their price range. They too believe that more upside is definitely the likely scenario for years.
Click here for a bonus video that I recently shared discussing Square (SQ). I think it can help looking at this one here too. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
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