Sunday, May 27, 2012

"With the steady migration to electronic payments for all financial transactions there are "4 Aces" that you should nail down in your portfolio"

Dow Jones Industrial Average 12,454.83 (Down)  Week Ending 05-25-2012

Leave your wallet at home! You will just need to bring your Smartphone with you with a variety of scanning bar codes or to send an SMS short message from "machine to machine" and you will make your purchase.  Don't have a Smartphone? Then you will probably pay using unique voice identification or your thumb print or via an Iris scan of your eye.

There are four specific companies that currently dominate this process for conventional processing and for mobile financial processing.

Those 4 companies are Visa, Mastercard, Ebay (with Paypal) and Verifone Systems Inc. These companies are also forming alliances between themselves. Verifone Systems is bringing Ebay's Paypal to the checkout. Verifone and Paypal sign pact 05-24-2012 .

So let's take a look at the financial fundamentals of these Four Aces.

Visa Inc. CL A  (Symbol V, $119.37)  you are all familiar with as a product in your wallet but have you ever thought about it as a portfolio investment?   Visa, according to the SmartMoney  website will earn $6.09 per share in 2012 and is projecting $7.11 per share in 2013.

Visa has had 5 year sales growth of 15.39%. They operate at Net Profit margins of 45.84% which is a very healthy number. The long term earnings growth of the company is projected at 18.04%. The PEG ratio is a very reasonable 0.93. This one is a no brainer for you to own. The 1 year Total  return has been 50.17% and the 3 year Total return is 79.39%

Mastercard Inc. Class A , (Symbol MA, $413.96) is another financial juggernaut. 2012 earnings are projected at $22.21 per share and for 2013,  $26.29 per share.
The Phillies 3 ACES, add Blanton for your 4th ACE.

MA,  has a 5 year earnings growth rate of 17.22%. Net Profit margin runs at 29.05 %. Long term earnings growth is projected at 17.05 %.  Return on Equity has been a staggering 35.09%. Yet the PEG ratio is still only a very low 0.92.  Another ACE for your Portfolio.  Even Buffett owns this one which tells you something about the fundamentals. The one year total return is 45.36% and the 3 Yr.Total return is 136.40%. 

 eBAY Inc. (Symbol EBAY, $40.35) is the third Ace in this financial Quadopoly. (Is that a word I just invented?).
eBAY,  is looking to earn $2.36 per share in 2012 and $2.73 per share in 2013.  The big earnings driver has been the financial processing branch & interface called PayPal. Sales growth is running at an adequate10.44% , however 5 year earnings growth has run at a mind numbing $174.39% Net profit margins are at a vigorous 26.85%.  The PEG ratio once again is conservative at 1.19.  2.00 is considering to be beginning of the stock to be overpriced traditionally, so you can understand this PEG number better.

The One year Total Return on eBAY with their PAYPAL division included is 31.52% and the 3 year Total Return is 129%. I own this one already and I expect that things are going to get even better going forward.

That brings us to our 4th Ace and the one that is most like a Wild card. Verifone Systems Inc.(Symbol PAY) is parked at the intersection of all things financial. They are the Global leader in Secure Electronic Payment Solutions. Verifone's customer base, according to a press release on their website, encompasses 80 percent of the top 200 largest retailers in the US.

 You can purchase the stock at a screaming buy right now, because they had a bad quarter and the stock was taken down 15.39% on Friday 05/24. The PEG ratio on the stock right now is 0.45.  Unnoticed on Friday, was the fact that Verifone Systems signed a gigantic agreement with eBay's PAYPAL division. (See the link at the top of the article.)  Also throw in the fact, that if Apple, Google, Facebook or Microsoft want to get into this game, that Verifone becomes a very likely buyout target especially at this bargain basement price.

Verifone is projecting earnings of $2.67 in 2012 and $3.26 in 2013. These numbers have not been re-evaluated yet for the new Paypal deal effects. Also Verifone has introduced SAIL , which is a payment as a service solution which also involves social media. (See the link next) "Small-and-medium-sized-businesses-set-sail-with-Verifone"  .

Here are some numbers. 5 year sales growth of 8.80%. Net Profit margins currently run 14.63%. Projected Long Term earnings per share growth is 25.96%. The wild ride with this wild card is One year Total Return because of the bad quarter is (-21.03%) . However the Three year Total return is 398.43% a little better to our liking.  I would buy this one here in earnest and fasten you seatbelt for the ride.

It is the opinion of Freewilly , that you should be in 3 to 4 of these stocks. Have a good Memorial Day Weekend in the USA, and around the world have a very good week.


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