Francois Strydom, portfolio manager at Momentum Securities, said they feel comfortable reducing their Mastercard position as it looks expensive.
Mastercard is the second-largest payment-processing corporation worldwide and offers a range of financial services.
Its principal business is to process payments between the banks of merchants and the card-issuing banks.
Mastercard has been publicly traded since 2006 and has shown exceptional growth over the last fifteen years.
Strydom said Mastercard had been a stalwart in Momentum Securities’ global equity portfolio since its inception five years ago.
“It is one of the stocks that can easily keep up to date with inflation in terms of how it pulls through in earnings,” he said.
“As people spend on higher prices, that comes through on the transaction fees being a fixed margin of turnover.”
Mastercard’s business model, therefore, offers an easy pass-through of inflation to its shareholders, or at least the protection of purchasing power in its share price value.
It has also been a stock that has helped Momentum Securities when there’s been a significant drawdown in the market.
Although it is a good investment, Strydom said Mastercard is expensive at the moment.
“On a valuation basis, it is way ahead of its peers. There is easily 20% of froth in the stock price now,” he said.
It’s not the first time Mastercard has been expensive, as it has always been a stock for which many asset managers were happy to pay.
“However, at this point in time, we feel it is very important to be nimble in the market as we have been in the last year,” he said.
“We feel there is a 20% premium where it is trading – between $350 and $360 – and could easily come back to $290 to $300 per share.”
“We are comfortable trimming our Mastercard position with the idea of re-investing at a lower price point in future.”
Strydom added that they are also focused on dividends and dividend-paying stocks, and Mastercard has never been a large dividend-payer.
“For that reason, we are comfortable to trim a bit of our Mastercard position at $350 to $360,” he said.
“Technically, it looks like it could be resistant at $360, or even as high as $380, but it might not get there.”
“For these reasons, we are comfortable reducing our position in Mastercard with the idea of buying back the shares at lower levels.”