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Sometimes, playing second fiddle is a pretty good deal. Take
MasterCard(MA - Get Report), for instance: the firm is the number-two payment network in the world, with a logo that's printed on around 31% of payment cards in consumers' wallets. Together with industry standard-bearer
Visa(V), MasterCard forms a duopoly in the payment business -- and a lucrative one at that.
Because MasterCard is the network, not the lender, the firm's balance sheet is free from exposure to credit risks that could send banks reeling if defaults started climbing. Instead, spending is the only thing that's tied to MasterCard's financial performance. And that spending creates a positive feedback loop for MA's card growth: since MasterCard is accepted almost universally, it's a card that consumers want to carry. And in turn, it's a card that more merchants have to keep accepting.
MasterCard currently carries $5.9 billion in cash and investments and no debt. While that cash position accounts for nearly a tenth of the firm's market capitalization, investors shouldn't see MA as a deep value name -- it trades at a pretty loft multiple. Even so, the uptrend in MasterCard is stellar, and shares aren't showing any signs of backing off new highs.
With a massive tailwind as consumers shift to electronic payments, that valuation premium looks justified.