The writer, Morgan Housel, makes the claims that Visa's recent run up in price is cause to sell. He further states that Visa is now priced for perfection. On the valuation side, he claims that Visa already has future growth priced in.
To quote from the article:
Say Visa meets 2011 earnings expectations of $3.95 per share, and still commands a multiple of 20 times earnings. Under these assumptions, it'll reward shareholders with annual returns of less than 8% per year -- nothing to sneeze at, but nothing to drool over, either.
To finish up the article, he states that banks are cutting back on credit lines and that is the core business of Visa. Credit transactions account for two thirds of business versus the rest made up by debit transactions.
Combine the recent run up with the downturn in the economy, the richly priced stock and credit lines being cut, Housel recommends selling Visa.
My Visa
I hold a position of Visa in my portfolio. I don't hold as large a stake percentage wise as I do other stocks like Netflix (NFLX) and Buffalo Wild Wings (BWLD). Visa has risen in value since I started purchasing but I never filled up my full allotment due to I believed that there were better stocks to buy. I never sold my holdings because I believed that there some value remaining in Visa. Today I continue to hold my position without adding anymore unless the price drops and it becomes undervalued.
According to Housel's valuation, Visa can return less than 8%. As with any valuation, there is some guess work and assumptions baked in.
Based on Housel's work, I don't feel compelled to sell Visa. Factoring in the dividend and Housel's valuation, I feel Visa has enough room to grow for me. While 8% isn't world beating, it's better than most CDs and savings accounts. My position in Visa is two thirds of a full position. Overall, Visa comprises about 3% of my portfolio. My risk tolerance is high and my horizon is over 15 years.
There is no guarantee that Visa will ever make me a return on my initial investment. However, combining overall market conditions, my risk tolerance and horizon, valuation of the stock and the overall position Visa takes up in my portfolio, I feel comfortable holding my shares.
Disclaimer: This is an update on my personal portfolio. I post my thoughts and opinions on the markets to help me think out my ideas as well as possibly providing insights. Likewise, I post for others to see my ideas and point out any flaws in my ideas or investment thesis.
This is not a recommendation of any kind for Visa or any other stock mentioned in this blog. Due your own due diligence or consult a financial advisor before purchasing any securities.
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