Tags: MasterCard | Oakmark | fund | Nygren

MasterCard Decline Has Top-Performing Large-Cap Fund Buying

Friday, 03 Oct 2014 12:27 PM

Portfolio manager Bill Nygren, whose $6.2 billion Oakmark Select fund has been among the best performing large cap funds in 2014, has added more than a million shares of MasterCard Inc. this year, even as shares of the payments company have shed almost 12 percent year to date.

Now the fourth-largest position in Nygren's fund, Mastercard has lost value on investor concerns about international sanctions on Russia and developments in alternative payments, such as Apple's introduction of its own payments system and eBay's decision to spin off its PayPal division into a separate company.

Nygren, whose 10.3 percent gain for the year puts his fund in the top 1 percent of 1,586 large cap funds tracked by Morningstar, sees phone-based payments as accelerating the demise of cash. That should be especially helpful to MasterCard, the second-largest payments company globally, in emerging market countries where smartphones are more plentiful than bank accounts, he said.

"If I pay with a smartphone instead of a credit card, that doesn't mean that MasterCard is going to be missing out on its fraction of a percentage of the sale."

While he owns shares of Visa Inc. in another fund he managers, Nygren has been buying MasterCard for the Oakmark Select fund, because it has more to gain from growth overseas and should perform better over the next three to five years, he said. Visa, by comparison, is more U.S.-focused, he said.

Visa gets more than 50 percent of its revenue domestically, compared with 40 percent for MasterCard, according to Gil Luria, an analyst at Wedbush Securities Inc.

The drop in MasterCard shares, which trails the benchmark Standard & Poor's 500 by about 17 percentage points year to date, makes the company a bargain even though it trades at 26.5 times trailing earnings, Nygren said. He expects the company to increase earnings by approximately 20 percent a year for the next several years as it continues to grow overseas, compared with single digit growth for the S&P 500.

Visa, by comparison, is down 5 percent for the year and trades at a cheaper 23 times trailing earnings.

Nygren is not put off by the fact that MasterCard is more expensive by those measures, even as it underperforms its competitors.

"Buying excellent companies at average prices is just as much value investing as buying average companies at exceptional prices," Nygren said.

 

Analyst Views

Analysts are largely bullish on the company, with an average target price among analysts tracked by Reuters of $89.02, a figure 22 percent higher than its closing price of $73.42 on Thursday. Twenty-eight out of 35 analysts tracked by Reuters have an overweight or buy rating, with just one, Christopher Donat at Sandler O'Neill Partners, having a sell rating.

Concerns that the company's growth will slow after years of strong performance is one of the main reasons behind its falling stock price this year, said Wedbush's Luria, who has a "hold" rating on the shares and a target price of $80. He recently reduced his 2014 earnings per share estimate for the company to $3.04 from $3.14.

"The upside is less than it used to be," he said, adding that Chase bank's decision early this year to shift customers from MasterCard-branded debit and credit cards to Visa cards will continue to cut into growth.

Mastercard did not comment for this story.

Nygren is not put off by MasterCard's continued declines since he began buying. Shares are down 2.2 percent over the last week alone.

"MasterCard has not helped our performance this year, but there is nothing fundamentally going on at the company that we are concerned about," he said.

© 2017 Thomson/Reuters. All rights reserved.

   
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Portfolio manager Bill Nygren, whose $6.2 billion Oakmark Select fund has been among the best performing large cap funds in 2014, has added more than a million shares of MasterCard.
MasterCard, Oakmark, fund, Nygren
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2014-27-03
Friday, 03 Oct 2014 12:27 PM
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