2 Reasons To Avoid Mastercard

With new cases of the coronavirus spiking in the US and worldwide .

With the already historic unemployment levels and job losses in recent months .

With massive uncertainty in hospitalsbanks, and other industries.

And with many Blue Chip stocks looking vulnerable when they’re supposed to be among the best areas to invest your capital.

There are few safe places to invest today. And this number grows smaller every day this crisis lasts.

The key to continue compounding your investments and build wealth is to keep investing well over time.

But another huge part of this that few think of is also losing as little capital as possible.

The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you achieve your retirement goals.

In recent articles I’ve shown you several stocks to avoid investing in…

Today I want to show you another stock to avoid so you can grow your investment portfolio safely.

2 Reasons To Avoid Mastercard

  1. It’s Overvalued

As of this writing Mastercard (MA) is a $343 billion market cap 2nd largest payment processor in the world behind only Visa.

And its massively overvalued…

  • Its P/E is 46.8.
  • Its P/CF is 39.6.
  • And its forward P/E is 38.

On all these metrics I look to buy investments below 20 to consider buying them.

Mastercard is well above these numbers which means its overvalued by a large amount.

And this means investing in its stock today gives you no margin of safety in investing terminology.

When you invest in stocks that have a margin of safety it makes the investment safer.  And it also means you should expect to earn higher returns owning its stock in the coming years.

The inverse of this is also true…

When you invest in a stock without a margin of safety it makes the investment riskier.  And it also means you should expect to earn less owning its stock going forward.

This lack of a margin of safety is the category Mastercard falls into right now.

But why is it so overvalued?

Because during this pandemic people are buying less stuff and paying their bills less.  Which leads to lower revenues, profits, and cash flows for the company.

When profits and cash flow fall but the stock price doesn’t fall as much… It leads to far higher valuations.  And this leads to increased risk, lower margin of safety, and lower returns you should expect to earn by owning its stock going forward.

Let’s get to reason #2…

2. The Coronavirus Will Harm Mastercard

Most of the time in this section I tell you why a business won’t be harmed by the coronavirus.

But Mastercard will.

Due to mass unemployment people may stop paying their mortgages.

They may stop paying their student loans.

They may stop paying their car payments.

And they may stop paying their credit card bills and buying as much stuff…

This negatively affects Mastercard which was illustrated when Mastercard released its most recent quarterly report on July 30th, 2020.

  • Revenue fell 19% in the 2nd quarter of 2020 compared to the 2nd quarter 2019 to $3.34 billion.
  • Operating income fell 28% in this period to $1.7 billion.
  • And net income fell 29% in this period to $1.4 billion.

This in large part is due to a 9.4% decline in transaction volume in the quarter because people are buying less stuff and swiping their Mastercard’s less.

With tens of millions still out of work in the United States and hundreds of millions out of work worldwide – plus the pandemic still ongoing – Mastercard’s business will be harmed in the short to medium term.

Will it crush the company?

No.

But combine this with its huge valuation and you should avoid Mastercard stock due to the increased risk.

To learn why you should also avoid its large competitor Visa click the following link – 3 Reasons To Buy Visa – And 2 Not To.

Click the links below to see the stocks we recommend helping Depression Proof Your Portfolio.

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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