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1 Growth Stock to Buy and Hold in a Market Downturn

1 Growth Stock to Buy and Hold in a Market Downturn
Written by publishing team

The stock market is having a good year overall. the Standard & Poor’s 500 It’s up nearly 23% as of December 14, and 2021 is on track to be one of the best years in the past decade. But value stocks led the way, for the most part, to recover from the pandemic-induced recession in 2020. The financial sector, in particular, has been strong this year, but one segment of the sector, credit and payment companies, has not.

Payment companies have made solid gains in 2020, as more people are forced to adopt digital and contactless payments due to the pandemic. Master Card Credit Card (NYSE: MSc)For example, it has seen its stock price increase by more than 20% last year. But this year, the stock is down about 3% — with all losses taking place in the second half of the year. Since mid-July, Mastercard’s stock is down about 12% and is currently trading at around $343 a share. This is the time to buy and hold growth stock.

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MasterCard is well positioned to grow

Mastercard is part of a duopoly in the credit processing space, as it is and Visa Basically owning the market. There are other competitors, such as American Express And exploreThey are smaller in size and have different business models, where they lend money and collect interest as well as fees. Mastercard and Visa are not lenders, so they make all their income from withdrawal fees – fees from merchants and users every time a credit card is used on their massive networks. It’s a great business model that allows Mastercard to generate tons of revenue with little overhead and no credit risk.

But due to the rapidly changing payment landscape, there is increasing competition from Buy Now, Pay Later (BNPL) companies, as well as digital payment providers such as PayPal And to forbid (Previously known as Square).

But the company is still going strong, with a quarter-by-quarter jump as net revenue jumped 30% to $5 billion, and net income jumped 59% to $2.4 billion, or $2.44 per share. Gross dollar volume (GDV) jumped 20% while cross-border volume increased 52% and swap transactions increased 25% year-over-year. Proof of its efficiency, Mastercard has an absurd return of 127% on equity, an extraordinarily high rate, and a similarly high operating margin of 53.6%.

One of the main advantages that MasterCard enjoys is the abundance of cash. The company has $6.4 billion in cash and cash equivalents, after making several acquisitions, including open banking Aiia, cryptocurrency intelligence firm CipherTrace, and bill-finding Latin American Arcus, in just the past few months. Also, high margins and ample free cash flow allow the company to invest to remain competitive. It recently launched a BNPL service called Mastercard Installments, which allows customers to pay in interest-free installments.

Its other major advantage is a huge global network that allows it to rapidly expand the range of these new services and features. So, as funds and payments change, Mastercard appears to be well positioned to navigate and grow.

Good time to buy

If things are going well, why has the stock price fallen this year while the economy is growing and the S&P 500 is up 23%? There are a few factors at work here. First, the market appeared to react negatively to all credit and payment card companies this fall due to inflation concerns and concerns about the new omicron variable, both of which are likely to slow economic growth.

Another reason is that Berkshire Hathaway Founder and CEO Warren Buffett has cut his positions at both Visa and Mastercard, and that could have the effect of moving markets. Buffett has only sold about 6% of his company’s shares in Mastercard, so he still has a large portion of it in his portfolio.

The recent sell-off has brought the price of this growth stock down a bit, making it a good time to buy. The factors that have sank the stock price are not long-term concerns, and as the company faces new and growing competition, it appears to be well positioned to continue thriving in the world of digital payments.

The consensus estimate of MasterCard among Wall Street analysts is a gain of 25% over the next 12 months to $430 a share. If you are considering adding this stock to your portfolio, now is the time to do so.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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