Over the last several quarters, the stock market has been on the fringe of a bear market. While this has many investors scrambling to limit their losses, others are swarming in to buy stocks with predictable growth trajectories and stable cash flows. One stock that should catch the eye of many savvy investors is Mastercard.
Mastercard is one of the largest global payment services in the world and the company shows no sign of slowing down. Founded in 1966, Mastercard was initially known as Interbank Card Association from 1966 to 1979. The company was stylized as MasterCard from 1979 to 2016. Since 2016, the company has simply been known as Mastercard, Inc.
The company went public in June 2006, trading on the New York Stock Exchange under the stock ticker MA. The stock began trading at an IPO price of just $4.80 per share. Over the last 16 years, the stock has continued to rise steadily , reaching an all-time high of $399 per share in January 2022.
MA is trading with a market cap of around $330 billion and has a 52-week low of $305.61, and a 52-week high of $399.92.
3 Reasons To Buy and Hold Mastercard Forever
Here are three key reasons that make Mastercard a great long-term investment option.
1. Growing Cash Flows
In 2017, Mastercard generated $5.3 billion in free cash flow to shareholders. By 2018 that number had increased to $5.8 billion. In 2019 it rose substantially to $7.7 billion. However, cash flows took a step back in 2020 to $6.8 billion, which is not a surprise given that Mastercard is not immune to economic downturns, such as the Covid crash that took place that year. By 2021, however, cash flows had turned up again in a big way when Mastercard reported over $9 billion in free cash flows.
But why are these cash flows so important?
Mastercard is growing rapidly in emerging markets and can dip into these stable and growing reserves to finance its expansion overseas. It already has cemented its position in the largest consumer economy in the world, and Mastercard should be able to leverage that strong foundation to grow at double-digit rates for the foreseeable future.
2. Mastercard Has a Wide Moat
Mastercard connects thousands of financial institutions and millions of merchants in over 200 countries and territories.
The ability of this single company to connect millions of consumers and merchants around the world gives the company a clear competitive advantage, and more importantly a moat that is almost impossible to disrupt for newcomers aiming to dethrone it.
3. Mastercard Is A Pure Play Payment Processor
Mastercard could generate even more fees and income from interest payments if it were to add lending as a service. The problem with so doing is that the company would be liable for loan delinquencies when economic conditions turn south.
For investors, the company’s decision to remain as a pure play payment processor should offer peace of mind. Unlike others who combined payment processing with lending, Mastercard does not need the deep capital reserves to play the loan (default) game during poor economic climates. As such, the company can spring back quickly when the economic tides of change turn in its favor.
Is Mastercard a Buy, Sell, or Hold?
So, is MA stock a buy, sell, or hold right now? All indications are pointing toward MA stock being a great buy for long-term investors right now. Analysts have pegged fair value for the company at $432 per share, suggesting almost 30% upside from current levels. Add the company’s $0.49 quarterly dividend per share to the growth opportunity, and the firm’s wide moat, and forecasted double-digit growth and you’ve got a company to buy and hold for the long-term.