I own shares of a lot of companies in the S&P 500, and one of my all-time favourite holdings is Visa (NYSE:V). This stalwart of digital finance has been one of the most stable growth companies over the years. Since 2014, it has grown an incredible 400% in price, with very little volatility.
Global diversification = stability
Visa operates in more than 190 countries and territories, and this provides it with much more stability than if it was concentrated in just one country. As an example, if there’s a recession in one region, the company can still benefit from growth in others where economies remain strong.
It also has an incredible 90% of the digital payments market share in 50 countries. Part of what has facilitated it is an adaptive approach to regional payment preferences and technology innovation.
The other major player is, of course, Mastercard, which currently has higher growth rates than Visa but is less established. In my opinion, while the former is potentially the more lucrative investment, the latter provides more stability and hopefully less volatility.
Visa is expensive for a reason
The shares currently have a high price-to-earnings (P/E) ratio of nearly 29. However, this is lower than its 10-year median of nearly 32. By comparison, the industry median is currently 14.5.
One crucial element I always keep in mind about Visa is that it’s an industry leader. As a result, its valuation deserves to be higher than most other industry peers.
Strong investor sentiment is required to keep the valuation high. With a revenue growth rate of 17% as a three-year average, I don’t think the market is going to fall out of love with the shares any time soon.
Nimble fintech companies could be a threat
There are rising new fintech companies and novel currency formats, including those powered by blockchain. While currencies like Bitcoin currently have much less utility in the market than traditional digital payments, this could change. It could disrupt Visa’s market position significantly over time.
Younger generations are favouring some of the new technologies that companies are developing. To combat this, I believe management might need to embed new currency solutions into its payment network more comprehensively.
On the other hand, it’s engaging with emerging innovators. This includes its Fintech Fast Track programme, where it invests in novel financial companies and embeds them in its platform.
In the best-case scenario, Visa is one of the most well-resourced businesses with the potential to integrate disruptive technologies strategically into its network. So, this could end up as a reason to be bullish as long as management navigates the market changes effectively.
Among my largest long-term holdings
The weight of this company in my portfolio changes over time, but it usually rests between about 5% to 10% of my total assets.
I feel comfortable having so much of my money in Visa shares because I consider it quite a low-risk investment. It’s supported by amazing profitability, including a net margin of 55%. Its margins continue to rise as its economies of scale become more pronounced.
I think I’ll be bullish on this business for a long time and it may just be one of my lifelong holdings.
