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S&P 500   5,083.63 (+0.27%)
DOW   38,979.33 (+0.08%)
QQQ   437.74 (+0.57%)
AAPL   180.52 (-0.50%)
MSFT   408.56 (+0.21%)
META   487.77 (+0.77%)
GOOGL   136.84 (+0.34%)
AMZN   174.91 (+1.01%)
TSLA   200.12 (-0.95%)
NVDA   792.82 (+2.08%)
NIO   5.66 (+4.24%)
AMD   187.42 (+6.16%)
BABA   74.20 (-0.52%)
T   17.03 (+0.41%)
F   12.45 (+1.22%)
MU   89.78 (+0.08%)
CGC   3.32 (-1.19%)
GE   156.08 (+0.30%)
DIS   111.40 (+0.54%)
AMC   4.44 (-11.02%)
PFE   26.88 (-0.59%)
PYPL   60.56 (+0.51%)
XOM   104.62 (+0.29%)
S&P 500   5,083.63 (+0.27%)
DOW   38,979.33 (+0.08%)
QQQ   437.74 (+0.57%)
AAPL   180.52 (-0.50%)
MSFT   408.56 (+0.21%)
META   487.77 (+0.77%)
GOOGL   136.84 (+0.34%)
AMZN   174.91 (+1.01%)
TSLA   200.12 (-0.95%)
NVDA   792.82 (+2.08%)
NIO   5.66 (+4.24%)
AMD   187.42 (+6.16%)
BABA   74.20 (-0.52%)
T   17.03 (+0.41%)
F   12.45 (+1.22%)
MU   89.78 (+0.08%)
CGC   3.32 (-1.19%)
GE   156.08 (+0.30%)
DIS   111.40 (+0.54%)
AMC   4.44 (-11.02%)
PFE   26.88 (-0.59%)
PYPL   60.56 (+0.51%)
XOM   104.62 (+0.29%)
S&P 500   5,083.63 (+0.27%)
DOW   38,979.33 (+0.08%)
QQQ   437.74 (+0.57%)
AAPL   180.52 (-0.50%)
MSFT   408.56 (+0.21%)
META   487.77 (+0.77%)
GOOGL   136.84 (+0.34%)
AMZN   174.91 (+1.01%)
TSLA   200.12 (-0.95%)
NVDA   792.82 (+2.08%)
NIO   5.66 (+4.24%)
AMD   187.42 (+6.16%)
BABA   74.20 (-0.52%)
T   17.03 (+0.41%)
F   12.45 (+1.22%)
MU   89.78 (+0.08%)
CGC   3.32 (-1.19%)
GE   156.08 (+0.30%)
DIS   111.40 (+0.54%)
AMC   4.44 (-11.02%)
PFE   26.88 (-0.59%)
PYPL   60.56 (+0.51%)
XOM   104.62 (+0.29%)

Rising credit card delinquencies make these stocks your safer bet

Credit card stocks outlook

Key Points

  • Rising credit card delinquencies have hugely affected the leading commercial banks in the country. Still, there's a hidden opportunity to this.
  • By focusing on the middlemen of consumer credit, stocks like Mastercard and Visa begin to shine as targets.
  • Even American Express could prove a safe haven in this fallout because of its business model.
  • 5 stocks we like better than Mastercard

The credit cycle, as well as the business cycle in the United States economy, is getting underway for a major pivot coming into 2024. Whether you are a long-term investor or enjoy dabbling in and out of markets in trading, this new cycle could bring you several potential opportunities for your money to be deployed.

You see, now that earnings season has kicked off for the year, many looked to the major banks to understand where investors and everyday consumers stand today and where they are likely to go next. This includes insights from banks like Bank of America NYSE: BAC, Citigroup NYSE: C, and Wells Fargo NYSE: WFC.

Much more detail from the masters of the universe in a bit, but for now, all you need to know is that credit card delinquencies are on the rise, and these banks are writing down heavy losses. Investment dollars will likely flee to a safer space in the consumer credit industry, where names like American Express NYSE: AXP, Mastercard NYSE: MA, and Visa NYSE: V shine.


What is going on? 

George Soros famously put out his theory of reflexivity, another branch of behavioral economics, describing the way that psychology plays a huge part in how financial markets react and behave during business cycles. So, what is the average consumer doing today?

During the 2020-2022 years affected by the COVID-19 pandemic, the United States FED was forced to drop interest rates to zero. This made borrowing money easier - and cheaper - than ever for everyone, no matter their credit worthiness.

As always, these periods tend to form bubbles, and credit cards got so inflated then that the adverse effects begin to show their face today. People who took on debt when it was easy and cheap fell into the continuation fallacy that times would remain easy forever.

When the FED hiked interest rates through 2023, this became a rude awakening for many. Now, delinquencies are on the rise, according to the main commercial banks in the country, as these same borrowers are having a harder time repaying their credit lines. 

According to Bank of America's latest quarterly financials, the bank saw a net charge-off (loans that are considered lost due to delinquency) increase from $689 million to $1.2 billion in twelve months, a bit concerning. Citigroup and Wells Fargo followed a similar trend with increases in these accounts.

In Citigroup's results, management points to 3.8% of all loans being a charge-off, increasing from 2.2% a year prior; this represents an increase of $700 million. More than that, the bank expects 5.0% unemployment in the U.S. in 2024. Wells Fargo posted a rise of $692 million in charge-offs as well. 

The buck stops here 

Knowing what you know now, looking at the consumer credit industry for good investment ideas is probably not the best idea. This is precisely why you should look in here for opportunities because if everyone has the same negative perception, then your payoff could be amplified by being a contrarian.

Because these loans are a game of hot potato, your goal is to get in the middle of the flow between consumer activity and the receiver of the risk, which is usually these same banks posting losses in this department. So, to get in between, you should start looking at the middlemen, also known as Visa and Mastercard.

There has to be a reason why analysts are projecting 16.4% earnings per share growth in Mastercard for the next twelve months and are just as bullish by pumping Visa with a projection for 12.6% growth in the coming year. While not crazy figures, these growth rates are all the more important considering the size of these companies.

This perceived safety comes from the business models themselves, but what about American Express, which typically holds the potato at the end of the credit line cycle? Well, the brand itself is a protection factor against these falling consumer fundamentals.

Because of American Express's exclusive business model and rigorous approval process that only accepts the best of the best FICO scores and consumer profiles, a fallout in delinquencies is likely to have only a minimal impact on the company's ability to collect payments.

If that doesn't make it a safe bet, then you'd be going against analyst EPS growth projections of 10.6% for the next twelve months.

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Should you invest $1,000 in Mastercard right now?

Before you consider Mastercard, you'll want to hear this.

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While Mastercard currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Wells Fargo & Company (WFC)
4.4857 of 5 stars
$55.30+1.1%2.53%11.47Moderate Buy$51.43
Citigroup (C)
4.7556 of 5 stars
$54.99-0.1%3.86%13.78Moderate Buy$57.03
Bank of America (BAC)
4.5891 of 5 stars
$34.35+0.8%2.79%11.19Moderate Buy$35.53
American Express (AXP)
4.6127 of 5 stars
$218.80+0.4%1.10%19.52Hold$189.00
Visa (V)
4.4988 of 5 stars
$283.89-0.6%0.73%32.67Moderate Buy$290.55
Mastercard (MA)
4.8026 of 5 stars
$475.37-0.7%0.56%40.18Moderate Buy$471.85
Compare These Stocks  Add These Stocks to My Watchlist 

Gabriel Osorio-Mazilli

About Gabriel Osorio-Mazilli

  • gosoriomazzilli@gmail.com

Contributing Author

Value Stocks, Asian Markets, Macro Economics

Experience

Gabriel Osorio-Mazilli has been a contributing writer for MarketBeat since 2023.

Areas of Expertise

Value investing, long/short trading, options, emerging markets

Education

CFA Level I candidate; Goldman Sachs corporate training; independent courses

Past Experience

Analyst at Goldman Sachs, associate at Citigroup, senior financial analyst in real estate


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