We recently compiled a list of the 10 Unrivaled Stocks of the Next 10 Years. In this article, we are going to take a look at where Visa Inc. (NYSE:V) stands against the other unrivaled stocks of the next 10 years.
Growing a business is not an easy task. Several factors come into the picture when you talk about growth. In 2019, McKinsey reported that ~50% of the companies that enjoyed healthy and stable shareholder returns but didn’t see top-line growth were either acquired or delisted. Growth is getting tougher amidst new market dynamics such as higher consumer expectations, competitive intensity, and digital disruption. Growth can only be rewarded to businesses that spot opportunities at hyper-granular levels and then seize them quickly.
Pricing Power Remains Critical, Says Legendary Investor
Warren Buffett, the billionaire CEO of Berkshire Hathaway Inc., mentioned that he tends to rate businesses based on their ability to increase prices. He pays so much attention to the pricing power that he sometimes doesn’t even consider the people who are managing the business. Buffett has had a successful career of stock picking and takeovers.
The veteran investor has bought companies in the business of railroads and electricity producers, whose pricing power comes from a dearth of competitive options available to their clients. Buffett has also built stakes in several consumer discretionary companies relying on the appeal of their brands to bring in customers.
Forecasts for 2024
Wall Street analysts expect that S&P 500 companies are expected to report steady earnings growth in 2024. They anticipate a ~5.4% earnings growth in 3Q 2024 and over ~15% earnings growth in 4Q 2024. The S&P 500’s forward price-to-earnings ratio sits at ~22.40x as of August 30. The 10-year average forward price-to-earnings ratio came at ~17.9x, suggesting that the stock valuations might be slightly stretched.
Moving forward, the US presidential election remains the most significant potential market catalyst for 2H 2024. Landsberg Bennett Private Wealth Management believes that inflation numbers might surprise to the upside towards the end of 2024 and into 2025. This is because year over year comparables might become more difficult and the effects of increased Chinese shipping rates start reflecting in the inflation data points.
Equity Market Outlook Amidst Uncertain Macro-Economic Environment
A “higher-for-longer” backdrop favoured larger and higher-quality companies that are less cyclical and rate-sensitive. Such companies were supported by mania in Artificial Intelligence/Large Language Models (AI/LLM) stocks. JPMorgan believes that, in the US equities, momentum crowding and stock market concentration reached multi-decade extremes.
Market volatility in the US remains low, with VIX averaging only ~14 for the year to July 2024. This was mainly because of fundamental and technical factors, such as rising markets, risk complacency, and lower realized correlation, among others.
In Europe and other areas, the broader equities were supported by improved economic activity and the expectation of multiple Fed cuts at the start of 2024. However, the growth-policy trade-off might worsen in 2H 2024. JPMorgan believes that “there is a risk of disappointment.” The large bank expects that the Fed might stay ‘higher-for-longer,’ US activity momentum might decelerate and there can be a softening of pricing and top-line growth. Collectively, this might hurt earnings delivery in 2H 2024. Therefore, investing in stocks with wide economic moats and companies having significant market share should help offset the losses in the remainder of 2024.
Our methodology
To list 10 unrivaled stocks of the next 10 years, we sifted through wide moat ETFs and checked online rankings. Next, we narrowed our list by filtering out the companies that have held a near-monopoly status for years or decades. Finally, we ranked the stocks in ascending order of the number of hedge funds that hold them, as of 2Q 2024
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close-up of a modern payments terminal with a pile of credit cards on the side.
Visa Inc. (NYSE:V)
Number of hedge fund holders: 163
Visa Inc. (NYSE:V) operates a retail electronic payments network. It provides global commerce through the transfer of value and information among financial institutions, merchants, consumers, businesses, and government entities.
Undoubtedly, the company is the leader in the payments industry, and its strong network effect and pricing power make up the wide economic moat. Millions and billions of Visa cards are being used around the world which are accepted at over 130 million merchant locations. If customers using Visa continue to increase, it will look more attractive to merchants as a result of a potentially big market. As and when merchants taking Visa cards increase, more and more customers will plan to use them.
Next, the company should continue to benefit from its large scale. As a result of this competitive advantage, Visa Inc. (NYSE:V) generates unmatched profits. In 3Q 2024, its GAAP net income sat at $4.9 billion or $2.40 per share, reflecting an increase of 17% and 20%, respectively on the YoY basis. Visa Inc. (NYSE:V) controls more than ~60% of the US market for credit and debit cards.
The company’s network has become more valuable due to the increase in places and ways in which it can be used. It primarily grows by tapping a greater share of global payment volume.
Bank of America reissued a “Neutral” rating on the shares of Visa Inc. (NYSE:V), giving the stock a $297.00 price target on 10th July. As of the end of the second quarter of 2024, 163 hedge funds out of the 912 funds tracked by Insider Monkey had stakes in Visa Inc. (NYSE:V).
Aoris Investment Management, a specialist international equity manager, released its Q2 2024 investor letter and mentioned Visa Inc. (NYSE:V). Here is what the fund said:
“Visa Inc. (NYSE:V) operates the world’s largest payments network, which facilitates the movement of money between merchants, financial institutions, consumers, businesses, and governments.
The company is best known for enabling consumers to make debit and credit card payments. In the year to September 2023, 4.3 billion Visa cardholders made 213 billion transactions on its network, to a total value of US$12.1 trillion.
Compared to cash and cheques, which are still widely used around the world, Visa’s network is a more convenient, secure, and ubiquitous way for consumers to pay. Visa has invested to reduce friction and fraud in the payments experience, to the benefit of both merchants and consumers…” (Click here to read the full text)
Overall V ranks 3rd on our list of the unrivaled stocks of the next 10 years. While we acknowledge the potential of V as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than V but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.