Stock in Major Uptrend Could Break Out for Double-Digit Gains

By
A A A

Amid talk of a "fiscal cliff," there is at least one brightspot on the U.S. economic horizon: Consumer spending.

In October, consumer spending saw its largest gain in half a year, rising 0.8% from the previous month, while income growth notched up 0.4%. One company that should benefit particularly from a buoyant spending environment is global payment giant, Visa ( V ) .

The company -- which connects millions of customers with an extensive network of 15,000 financial institutions across more than 200 countries -- makes it possible for people to easily pay with plastic, instead of cash or check. Visa also boasts one of the world's best payment processing networks; the company can securely and reliably manage more than 10,000 transactions per second.

While Visa certainly faces stiff competition, especially from archrival Mastercard ( MA ) , it currently is top dog in the electronic payment space. In 2011, more than 66% of all cashless transactions in the United States were through Visa.

Visa also has a strong presence internationally. Cashless transactions are becoming increasingly popular worldwide, helping the company achieve 12% international growth in the most recently reported third quarter. Visa's goal is to generate at least 50% of future revenue from outside the United States.

As this two-year chart shows, the strong uptrend indicates traders arebullish on the stock:

Since Visa's December 2010 low of $66.11,shares have more than doubled. The stock has been in amajor uptrend since June 2011, and shows no sign of slowing down. Shares recently broke a small shelf of resistance near $136.93, which acts as current support, bullishly completing a smallascending triangle formation.

Last week, the shares broke out above $135 resistance, hitting an all-time high of $146.41. The stock has since retreated slightly, presenting a potentially profitable buying opportunity.

The bullish technical outlook is supported by strong fundamentals. For 2012, analysts expect revenue will jump 11%, to $11.5 billion, from $10.4 billion last year. Holiday spending -- which many people put on their Visa cards -- should help drive anticipated growth. For the first quarter of 2013, analysts project revenue will increase 10.7%, to $2.9 billion, from $2.6 billion in the comparable year-ago period.

Theearnings outlook is similarly strong. Due to increased worldwide transactions, analysts expect full-year 2012 earnings will rise nearly 17% to $7.23 per share, from $6.20 last year. As global transactions continue to grow, first-quarter 2013 earnings are projected to climb 12.5% to $1.80 per share, up from $1.60 per share in the year-earlier quarter.

In addition to a strong fundamental outlook, the company has a cleanbalance sheet . Visa has $2.8 billion in cash and nolong-term debt . In the most recently reported third quarter, the company spent $324 million to repurchase 2.5 million shares. Another share repurchase program of 1.5 million shares is planned.

The company also offers a $1.32 per share forward annualdividend , which works out to about 1% per share. Management has consistently increased the annual payout every year since the company went public in 2008.

Given the bullish technical outlook, supported by strong fundamentals, I plan to go long on the global payment company.

Risks to consider: Store-specific mobile payment applications, through devices like smartphones, are becoming more popular. For example, you can now go to Starbucks ( SBUX ) and purchase your coffee through your mobile phone, via an electronic payment system called Square Wallet. Visa will need to respond to this competitive threat to remain healthy in the future. However, the company does currentlyoffer some mobile payment options and should continue to progress in this direction.

Action to Take --> Place a buystop order on V at $146.43, just above its recent high.  Set stop-loss at $135.91, slightly below current support. Set initialprice target at $176.30 for a potential 20% gain by mid-2013.

This article originally appeared on TradingAuthority.com:
Stock in Major Uptrend Could Break Out for Double-Digit Gains



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.


This article appears in: Investing , Investing Ideas , Stocks

Referenced Stocks: MA , SBUX , V

StreetAuthority

StreetAuthority

More from StreetAuthority:

Related Videos

Russell’s One Good Reason
Russell’s One Good Reason           
Tammy’s One Good Reason
Tammy’s One Good Reason             
Lisa’s One Good Reason
Lisa’s One Good Reason              

Stocks

Referenced

93%
89%
64%

Most Active by Volume

87,324,760
  • $7.31 ▲ 22.04%
79,329,227
  • $17.16 ▲ 0.76%
74,153,988
  • $8.87 ▼ 5.84%
49,177,672
  • $34.01 ▲ 4.39%
44,197,901
  • $101.40 ▲ 1.38%
43,197,735
  • $11.70 ▲ 3.36%
42,712,021
  • $74.99 ▲ 1.19%
42,423,171
  • $108 ▲ 0.95%
As of 10/31/2014, 04:15 PM

Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com