In the first half of 2023, stock market gains were predominantly driven by Big Tech stocks. Apple and Microsoft, for example, both rose more than 40§1§%. Looking ahead, I remain bullish on these growth stocks. However, given their big gains year to date, I think there will be other shares that outperform them in the second half of the year. With that in mind, here’s one of my top investment ideas for H2 2023.
Growth at a more reasonable price
One stock that I think has the potential to do very well in H2 is electronic payments giant Mastercard (NYSE: MA). It’s having a good run in 2023. But it hasn’t run anywhere near as hard as some of the mega-cap tech companies, having gained ‘just’ 15%.
As a result of this underperformance, Mastercard now looks more attractive than several of the Big Tech stocks in terms of valuation. Currently, it has a price-to-earnings-to-growth (PEG) ratio of 1.7. That compares to 3.2 for Apple and 2.1 for Microsoft.
Given this lower valuation, I wouldn’t be surprised to see big-name investors move money out of Big Tech and into this stock as they rebalance their portfolios in the months ahead.
A world-class company
Like the Big Tech stocks, Mastercard is a high-quality company with a lot going for it from an investment perspective.
For starters, it has a very wide economic moat. Its enormous global payments network cannot suddenly be replicated by a competitor. This allows the company to consistently generate a very high return on capital.
Secondly, it’s benefitting from several powerful trends. One is the shift from cash to digital payments.
Another is the increase in global travel (people tend to use their credit cards a lot when abroad). It’s worth noting that the travel industry is now booming again. For example, France is so overwhelmed by tourists that it has a campaign to channel them away from the popular destinations to less visited places! This leads me to believe that Mastercard’s near-term earnings could be better than expected.
The stock is also a natural inflation hedge. When prices rise, so do its revenues as it takes a small cut of every transaction on its network. So it could be attractive to those looking for inflation protection.
Finally, it’s worth pointing out that Mastercard has recently been moved from the Technology sector to the Financial sector. I think this could increase investor interest in the company in the near term. Instead of investing in a bank, a fund manager can now get exposure to financials through this world-class payments company.
I could be wrong
Now, of course, Mastercard shares may not do well in the second half of 2023. Like every company, it has its own unique risks. New legislation aimed at curbing credit card transaction fees is one here to consider here. A downturn in consumer spending is another.
All things considered however, I think there’s a reasonable chance the stock will produce healthy gains in the second half of 2023. It’s in an uptrend and currently breaking out to new all-time highs, which is very bullish, to my mind.
If I didn’t already have a large position in the payments company, I would be investing in it today.