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For the Holidays, Forget Retail Stocks

NEW YORK (TheStreet) -- We've got enough decisions to deal with during the holiday season, so why complicate it even more by trying to decide which retailer to buy? 

J.C. Penney (JCP) has been so beaten up, any positive news could pop it higher, but will that news come? Are people buying shoes at Foot Locker (FL)? If so, are the shoes Nike (NKE) or Under Armour (UA)? Will Microsoft (MSFT) end up surprising analysts with stronger-than-expected tablet sales? 

Eliminate the what ifs and increase your odds at predicting the holiday winner. Here's why: One cannot possibly do enough channel checks to accurately figure out where the entire country is doing its shopping and the analysts aren't dependable enough for us to trust their "research." 

Instead, make it easy on yourself, buy Visa (V - Get Report) and Mastercard (MA - Get Report)

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This way, you don't need to predict where consumers are shopping, so long as they are shopping. With lower gas prices and higher online sales, it only increases the likelihood that Visa and Mastercard will be this season's holiday winners. 

[Read: Bad Credit Card Rewards Programs]

Visa and Mastercard are ideal because they don't just act as solid trading vehicles for a strong holiday season but also represent viable investments over the long-term. 

Visa became unusually volatile in August but has since started to regain the slow-but-sure grind higher that so many investors enjoyed for years. 

Right now, the stock is currently resting near resistance at $205 but is not overbought, meaning it could break through resistance and go higher or fail to penetrate and drift lower before finding temporary support, likely around $196. 

Unlike Visa, Mastercard has maintained the consistent, slow-but-sure price action. Shares pop and then coast higher, before fading lower down to the 50-day moving average, where support has historically been found. In fact, the stock hasn't pulled backed to its 200-day moving average since 2010. 

With that being said, Mastercard is near overbought territory and technically looks to be putting in a short-term top. As much as I'd like to grab the stock in the low $700s, I'm not sure how far the bulls will really let the stock decline. 

But I think we'll get our chance to buy. A lot of retailers are temporarily overbought, while the PowerShares QQQ (QQQ), SPDR S&P 500 (SPY), and SPDR S&P Retail ETF (XRT) are three broad-based indices near overbought territory as well. 

[Read: After-Hours Trading Gave Krispy-Kreme Gooey Dough-Cuts]

I think the Black Friday and Cyber Monday hype is getting too optimistically built into these assets, which could ultimately be a sell-the-news type of event. Although in this bull market environment, that "sell" could be short-lived.

Either way, I believe investors will get their chance to nab shares of just about anything retail related at a slightly cheaper level -- a true holiday sale. 

As spending ramps up, the payment processors are going to be the big winners. Cyber Monday sales tallied in at $2.29 billion, a 16% increase from last year according to a study by Adobe (ADBE). Internet transactions jumped 26% to $7.4 billion over the five-day shopping period beginning last Thursday. 

Online shopping bodes well for companies like Visa and Mastercard, because they benefit from electronic payments. It was also reported that 24% of shoppers plan to make purchases on a mobile device, a 44% increase from 2012. For Cyber Monday alone, according to the Adobe report, 18.3% of sales came from a mobile device, an incredible 80% increase from 2012. 

Clearly the move from cash and check to electronic payments is on and none will benefit more than Visa and Mastercard, the two dominant players by market share. 

At some point valuation can come into the discussion, but this isn't a short-term shift; the move from physical payments to electronic payments is a long-term, secular play.

This bodes well for investors with a longer-term time frame where U.S. credit card spending increased by $172 billion or 8.4% in 2012, compared to 2011. 

[Read: Apple, China Mobile: It's Here]

Only 8%? Why pay a premium for that? 

Don't forget debit spending. Remember, it doesn't matter if it's a credit or debit payment, just that it's an electronic payment, in other words, not cash or check. 

Debit spending increased by $129 billion in the United States in 2012, a 7% increase from 2011. 

In the United States, Visa accounted for roughly 59% of the credit, debit and prepaid card volume as of 2012. Mastercard accounted for 26%, quite a bit lower, but does a fair amount of volume worldwide, (although still lower than Visa). That's 85% of the U.S. volume between the two companies!

It's likely that 2013 will be a solid shopping season and rather than choose where shoppers are spending their dollars, just choose what's in their wallet instead.

At the time of publication, the author was long V and MA and short QQQ as a hedge. 

-- Written by Bret Kenwell in Petoskey, Mich.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Bret Kenwell currently writes, blogs and also contributes to Robert Weinstein's Weekly Options Newsletter. Focuses on short-to-intermediate-term trading opportunities that can be exposed via options. He prefers to use debit trades on momentum setups and credit trades on support/resistance setups. He also focuses on building long-term wealth by searching for consistent, quality dividend paying companies and long-term growth companies. He considers himself the surfer, not the wave, in relation to the market and himself. He has no allegiance to either the bull side or the bear side.

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