Credit card stocks gained in the wake of strong holiday and Black Friday retail sales.
Mastercard (MA) - Get Report Inc. shares rose 5.03% to $191.85 apiece Monday afternoon. American Express Co. (AXP) - Get Report rose 3.15% to 109.10 a share. Visa Inc. (V) - Get Report rose 2.33% to $135.94 a share.
Many brick-and-mortar retailers reported strong holiday and Black Friday sales. Expected strength in Cyber Monday sales isn't hurting either. Cyber Monday this year could see spending of more than $3 billion, for a more than 25% year-over-year increase, according to Mastercard Spending Pulse. "Our initial early numbers are showing that overall online retail sales this morning are in line with the season expectations and will likely set new records for this individual day," a Mastercard SpendingPulse note said.
But the credit card group carries some risk. Mastercard Inc. (MA) - Get Report trades at a trailing twelve month price-to-earnings ratio of 38, the highest multiple of the major U.S. credit card issuers. The S&P 500's average trailing PE ratio is currently roughly just above 20.
"From a valuation perspective, the shares have crept up a bit -- it's something we're monitoring," Allen Bond, portfolio manager for Jensen Investment Management told TheStreet. Jensen holds Mastercard stock for its clients. Others have also said they're cautious on the credit card group. While Bond said Jensen sold some Mastercard earlier in the year, it's still optimistic on the stock. "We trimmed a little bit earlier this year," he said, but added that Mastercard is competitively advantaged over other credit card companies, as it is positioned well globally, and could grow its market share nicely. Bond also mentioned Mastercard had fallen of late, and rebounded Monday.
The economy in 2019 is widely expected to slow down, causing concern for investors in highly cyclical stocks and consumer discretionaries. American Express, as a result of its rise Monday, now trades at 26 times trailing twelve months earnings. Visa trades at 30.5 times earnings.
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