Credit Card Stocks Offer Range-Bound Trading Opportunity

Cards expected to account for 27.6% of worldwide e-commerce transactions by 2023

Credit card stocks failed to charge higher along with the rest of the stock market in 2020 as investors feared a sharp decline in consumer spending amid stay-at-home orders and travel restrictions. However, prospects look brighter for the group this year, with the ongoing global rollout of COVID-19 vaccines and the likelihood of increased stimulus checks under a Biden administration.

Key Takeaways

  • Credit card stocks sit well positioned to benefit from higher consumer spending in 2021, driven by the COVID-19 vaccine rollout and additional government stimulus.
  • Visa Inc. (V) shares have found buyers near crucial chart support at $200.
  • Mastercard Incorporated (MA) shares rallied from the lower trendline of a trading range in a move that could lead to further buying.

Furthermore, payment providers sit well-positioned to benefit from the online shopping boom that has accelerated throughout the pandemic. According to market research site Statista, credit and debit cards will account for 27.6% of worldwide e-commerce transactions by 2023. Below, we take a closer look at the two largest credit card stocks and use technical analysis to work through several range-bound trading ideas.

Visa Inc. (V)

Visa operates as a payments technology company, facilitating digital transactions among consumers, merchants, financial institutions, businesses, and government entities. The 63-year-old credit card company saw its bottom line contact by 24% in the fiscal fourth quarter, as a plunge in cross-border volumes failed to offset an uptick in payment volumes and processed transactions. Look for this metric to turn around during 2021 as consumers increase their global travel itineraries.

As of Jan. 21, 2021, Visa shares have a $454.13 million market capitalization and are trading flat over the past 12 months. Investors receive a modest dividend yield of 0.63%.

Since gapping 8% higher in early November on the back of positive vaccine news, Visa shares have traded sideways. However, buyers have re-emerged over the past few trading sessions to defend crucial support at $200. Those who buy at these levels should anticipate a retest of the December through January swing high around $220 while managing risk with a stop-loss order placed under last week's low. The trade offers a favorable 1:2.35 risk/reward ratio, assuming a fill at Wednesday's closing price of $206.01 ($5.95 risk per share vs. $13.99 reward per share).

Chart depicting the share price of Visa Inc. (V)

The risk/reward ratio marks the prospective reward investors can earn for every dollar they risk on an investment. Many investors use risk/reward ratios to compare the expected returns of an investment with the amount of risk they must undertake to earn these returns.

Mastercard Incorporated (MA)

With a market value of nearing $335 billion, Mastercard provides transaction processing and other payment-related products and services globally. The company, which processes transactions in over 150 currencies, reported a 25% decline in its latest quarterly earnings due to a slump in cross-border transactions. The blow was somewhat softened by an increase in demand for the payment processor's cybersecurity and data analytics solutions, which saw around 4% revenue growth. Mastercard stock offers a 0.54% yield and is trading just 3.48% higher over the past year as of Jan. 21, 2021.

Since climbing to an all-time high in late August, the share price has traded mostly within a $46 range. More recently, the price rallied from the range's lower trendline in a move that could lead to further buying in the coming weeks. Traders who enter here should set a take-profit order at $367.19, where the stock may find sellers near the previously mentioned all-time high. Cut losses if the price breaks down beneath the Jan. 15 low at $321.88, as this would invalidate the range-bound trade setup.

Chart depicting the share price of Mastercard Incorporated (MA)

A take-profit order (T/P) is a type of limit order that specifies the exact price at which to close out an open position for a profit. If the price of the security does not reach the limit price, the take-profit order does not get filled.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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