Todd Gordon, managing director at Ascent Wealth Partners expects Visa stock to rally another 7% by next month as the “duopoly business” benefits from boosted digital transactions and e-commerce spending.
The payments industry is dominated by market leader Visa and runner up Mastercard that hold a formidable 45% and 24.5% share respectively in global card transactions. Calling the payments industry a “duopoly”, Gordon said: “There’s a very high barrier to entry in the payment space.”
Berkshire Hathaway chairman Warren Buffett who likes companies with “moats” or strong competitive advantage has invested in both Mastercard and Visa. Berkshire Hathaway is also the largest shareholder of American Express, another payments company.
Gordon added “several initiatives to expand their small business offerings — specifically digital and e-commerce — as well as their touchless point-of-sale offerings for brick and mortar,” to build Visa’s bull case.
Visa shares: Watch out for $200 price level
Gordon adds that the $200 price level would be crucial to watch. Visa shares closed at $198.74 yesterday and are marginally up in pre markets today. Shares are up 6.1% this year, outperforming the S&P 500. However, while the S&P 500 is very near its all-time highs, Visa shares are 7.2% below their 52-week highs.
Gordon says that Visa shares are in consolidation and “It looks to be on the back of that green bond announcement that it looks to be we may be breaking resistance here.”
He is referring to the $500m green bonds offering that Visa announced on Tuesday “to finance projects focused on energy-efficient improvements, renewable energy and sustainability.”
Gordon added that Visa shares have support near the $200 price level. “We’d like to stay above 200 on the way up hopefully to retest those highs and we see no reason why that should not happen,” Gordon told CNBC’c Trading Nation on Wednesday.
He added: “We hold Visa in our global growth strategy. It’s one of our larger holdings. We are quite bullish on the space whether we do return to some normalcy with a vaccine or we do stay under lockdown as we are now. We see Visa as benefiting regardless.”
Bullish call spread
Gordon also suggested a bullish call spread in Visa options. In a bull call spread, the trader positions himself to benefit from the limited upside potential. In this strategy, the trader goes long on the call option with a lower strike price and sells the call with a higher strike price with the same expiration.
Gordon suggests buying Visa’s September $202.50 call option and selling the $212.50 call option at $4 per spread. The bet assumes that Visa stock could rise between 2% and 7%.
Analysts polled by Refinitiv expect Visa shares to rise 11% over the next 12 months. Wall Street is bullish on the stock and it has a buy or higher rating from 31 analysts while the remaining five analysts have given it a hold. None of the analysts have given it a sell rating.