The Best Credit Card Stocks to Buy Right Now

For all intents and purposes, earnings season begins on Friday when some of the largest banks and financial companies report their first-quarter earnings. These large banks typically set the tone for the entire quarter. Because banks are often an indicator of economic performance.

In the next few weeks we will see quarterly results from another indicator segment. Payment processors and credit card companies typically provide insight into consumer spending and trust.

While all of the major payment processors are generally good investments, there is one that stands out as the best buy right now. Visa (NYSE:V). Here’s why:

Visa lagged behind its competitors.

In my book, the three major credit card companies are generally good buys. Of course, this depends on valuation and economic conditions at the time, but for now, Visa, Mastercard (NYSE:MA), and American Express (NYSE:AXP) all look pretty good.

A fourth major credit card company, Discover Financial Services (NYSE:DFS), is in the process of being acquired by Capital One (NYSE:COF), and there are still many regulatory hurdles to overcome. If that deal goes through, it could change the playing field over time, but we’ll cross that bridge when we get there.

But among the big three, Visa’s stock has lagged both Mastercard and American Express year to date and over the past year.

American Express had a record year in terms of sales and earnings in 2023, driven by surging demand for travel and higher net interest income driven by rising interest rates. American Express has a closed-loop network, so it is both a lender and an issuer. Visa and Mastercard are not lenders or issuers. Both are merely payment processors. Therefore, there is no interest income on the loan, but there is also no credit risk like American Express.

As such, Mastercard soared compared to Visa after recording higher sales and growth rates than Visa in the fourth quarter and fiscal year 2023. In its most recent quarter, Visa reported 9% year-over-year revenue growth and 8% adjusted net income growth for the quarter ended December 31. Meanwhile, Mastercard recorded sales increases of 13% and 17%. Increased adjusted net income. Mastercard also gave a slightly better outlook for 2024.

But one of the biggest reasons why Visa is the best buy of the three right now is its valuation.

Best value among credit card stocks

Another reason Mastercard outperformed Visa this year is that its 2024 guidance was slightly better. However, we do not believe the performance gap is large enough to warrant the high multiples that Mastercard currently trades for. Mastercard is trading at 40 times earnings, while Visa is at 31 times. In terms of forward P/E ratios, Mastercard stands at 32x and Visa stands at 27x.

Given the fact that both companies are tremendous companies with tremendous earnings power, I prefer Visa, the one with the lower multiple.

It’s important to note that American Express is trading at a much lower multiple (16 times forward earnings). But I’m curious about the impact of the Consumer Financial Protection Bureau’s recently imposed 8% cap on credit card late fees, as it affects banks and issuers like American Express more than Visa or Mastercard. It will be interesting to hear more about the potential impact on American Express’ first quarter earnings release.

Again, I like all three of these stocks and they are all great stocks to add to your portfolio, but if I had to pick one right now, I prefer Visa.

disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.