Like many top growth stocks, Mastercard (MA) has rebounded valiantly after the coronavirus bear market bottomed out in late March of 2020. The giant in payment processing finished the second half of 2020 with a solid 20.7% gain. And in early August of 2020, MA stock staged a new breakout past a proper buy point at 316.16.
A decent rally emerged. By Aug. 28, MA stock gained 16% over a five-week span. At a session high of 367.25 on that day, Mastercard climbed to a new all-time high.
But shares soon gave back all of its gain from that entry point near 316 and more. Why? Covid-19’s impact on the travel, retail and entertainment industries had pinched Mastercard’s financial performance in a painful way.
Please read more detail on Mastercard’s fourth-quarter results in this story.
However, a potential new breakout is afoot.
Through late August, Mastercard shares had rebounded as much as 84% from its March 23 low of 199.99. That edges out a 64% gain by the S&P 500 over the same time frame. Then the stock suffered a vicious October sell-off and showed a bearish change in character.
In just two weeks, it caved below the key 50-day moving average. MA shares also sank beneath the longer-term 200-day moving average. But now the stock has retaken both of these key technical price levels.
The 200-day moving average plots a stock’s average closing price over the past 200 sessions — roughly 10 months of action. You want to see a growth stock rise above the 50-day and 200-day lines and lead them higher as well.
MA Stock: A Proven Long-Term Leader
Mastercard is off to a solid start in March. And as the S&P 500 slipped nearly 2.5% last week, Mastercard defied the broad market drop, gaining more than 6% in heavy weekly volume.
So, is MA stock a buy now?
This story analyzes Mastercard’s business, technical action, and the quality of institutional ownership in MA stock.
Shares climbed adroitly after the company reported second-quarter results on July 30 last year. Analysts polled by FactSet saw earnings falling 39% vs. year-ago levels to $1.16 a share on a 21% drop in revenue to $3.25 billion. Mastercard earnings fell 28% vs. a year ago to $1.36 a share, yet smashed the consensus view by 20 cents. Revenue fell 19% to $3.34 billion, also topping Wall Street’s forecast. Net margin fell 600 basis points vs. the same quarter a year ago but still held strong at 41.1%.
Q3 results, however, stretched Mastercard’s year-over-year decline in both the top line (revenue of $3.84 billion, down 14% vs. a year earlier) and the bottom line ($1.60 in earnings per share, down 26%). For the full year, Mastercard’s bottom line shrank 17% to $6.43 a share.
Indeed, the year-over-year declines in the top and bottom lines shed more light on how coronavirus-related shutdowns have punctured consumer spending, especially at restaurants, bars and other indoor entertainment venues. On an annual basis, Mastercard earnings have grown each year since 2004. It had never posted an annual drop in the top line since at least 2001.
Interestingly, Mastercard did not stop investing in its own shares.
The latest news release notes that the company bought back 14.3 million shares for $4.5 billion — roughly 1.4% of the company’s current market value.
Amid expectations that the U.S. economy will rebound, the Street expects Mastercard’s profits to rise 25% this year to $8.03 a share and rebound another 29% to $10.37 in 2022.
Mastercard Stock History
Founded as an alliance of regional bank card associations on Dec. 16, 1966, Mastercard first held the name “Interbank.” Then it changed to “Master Charge” from 1969 to 1979.
Today, “Mastercard” is one of a few household names that define the concept of the credit card. But it’s also grown into a powerhouse in the field of processing debit card transactions.
The company has made it a mission to give more people access to electronic-based finance. So it’s touted a goal of helping 1 billion individuals connect to the digital economy by the year 2025. To achieve this goal, the Purchase, N.Y., company seeks to help 50 million small and micro merchants have access to financial services, “with a direct focus on providing 25 million women entrepreneurs with solutions that can help them grow their businesses,” according to the company website.
On Aug. 25, Mastercard noted in a study of small businesses across North America that 76% say the Covid-19 pandemic prompted them to become more digital, “with 82% changing how their business sends and receives payments.”
Tremendous Run By MA Stock
The company, which went public in May 2006 at 39 a share, split its shares 10-for-1 in January 2014. Without question, MA stock has accomplished a monster run. Three weeks after its debut, the stock cooled off and essentially moved sideways for seven weeks and formed one of the most bullish chart patterns among leading growth stocks: the flat base.
In the week ended Aug. 4, 2006, MA stock cleared the high of that base — 5.06, adjusted for the 10-1 split — in heavy volume. This breakout set the stage for a 6,760% run to a 347.25 new high set on Feb. 20 this year. So, over a nearly 14-year span, Mastercard stock has delivered a compounded annual growth rate of 37%.
You can set custom time periods for historical daily, weekly and monthly charts of Mastercard at MarketSmith.
Mastercard’s market value is $323 billion, with 997 million shares outstanding and a float of 988 million.
MA stock also offers a quarterly cash dividend of 40 cents a share, good for an annualized yield of 0.5%.
MA Stock Chart Analysis
Mastercard’s old all-time peak of 347.25 came just days before the Feb. 25 IBD Big Picture column downgraded the outlook for stocks to “market in correction” from “uptrend under pressure.” A correction is the best time to ease off margin, cut losses short, take profits in some stocks, and wait for market conditions to improve.
MA shares dropped 42% from that high. Such a decline has actually been common among top-performing growth stocks. The reason? Market leaders tend to fall 1-1/2 to 2-1/2 times the decline seen in the S&P 500 or the Nasdaq composite.
So, Mastercard fell only a tad more than the 34% correction by the S&P 500. This signals large investors — mutual funds, banks, insurers, pension funds and the like — were not overly anxious to dump their holdings.
MA stock bottomed out near 200, a round number and key psychological price level. Then in March and April, it marked several strong up days in heavy volume.
Let’s look at March 25, April 6 and April 29. (MarketSmith allows users to instantly view historical charts in stocks and indexes going back decades.) On all three sessions, MA stock gapped up and finished bullishly in heavy volume. Such price-and-volume action strongly hints at intense accumulation of shares by the institutional crowd.
In a gap-up in price, the session’s price low holds above the highest price of the prior session.
The most recent base also shows this type of bullish action.
Mastercard Stock Ratings Vs. Its Industry Peers
According to IBD Stock Checkup, MA stock holds a 53 Composite Rating on a scale of 1 (pitiful) to 99 (princely). That score has improved in recent weeks, but is still way down from a July peak at 91. The Composite Rating combines key fundamental factors (earnings-per-share gains, sales increases, profit margins and return on equity), a stock’s price action vs. the entire IBD database, and the quality of mutual fund ownership.
In general, only companies with a 90 Composite or higher deserve a spot on your watchlist.
The EPS Rating of 68 marks a sharp drop from 94 roughly seven months ago.
Just weeks ago, MA showed a 50 Relative Strength Rating but that’s now plunged to 35. And that’s way down from an 80 in September. This means MA stock, for now, is outperforming just 35% of all companies in the IBD database over the past 12 months. Better, but not yet desirable.
During the breakout back in early August, MA stock showed an RS Rating of 71. However, it’s not uncommon for large and megacap stocks to show an RS Rating below 80 ahead of its breakout — especially if they’re trying to stage a turnaround in their business.
Institutional sponsorship remains strong. At the end of the fourth quarter, 4,414 mutual funds owned shares in Mastercard, according to the data block on a MarketSmith weekly chart. That’s up from 3,852 funds in the third quarter of 2019. Top growth funds that own shares include Fidelity Contrafund (FCNTX), Janus Henderson Forty (JFRDX), Wells Fargo Growth (SGRAX) and Fidelity Magellan (FMAGX).
Current MA Stock Action
From late September, Mastercard had enjoyed institutional buying support along its 10-week moving average. But that ended in the week ended Oct. 23. Shares fell 2.9% for the week. While volume came in light, Mastercard made its first close below this key technical level since its early August breakout. Then investors pulled the rug out from underneath the stock as MA caved 12% in the heaviest weekly turnover in months.’
Yet since the U.S. elections on Nov. 3, institutions have backed up the truck to buy MA stock.
Please view the weeks ended Nov. 6 and 13; Mastercard rallied sharply in heavy weekly volume; this is an unmistakable sign of accumulation by mutual funds, banks, insurers, pension funds, college endowments and the like.
Locate The New Buy Point This Way
Mastercard has now finished a new consolidation that could set up a stunning breakout to new highs.
Within this long base, a seven week cup without handle took shape. This chart pattern still offers a 359.51 buy point for now. If the stock can power past 359.51 in heavy or accelerating volume, such price-and-volume action would signal that institutions are getting greedy again. Without strong demand among the big boys and girls on Wall Street, breakouts usually fizzle.
Find the correct buy point by adding a dime to the highest price within the cup, or 359.41, to get 359.51.
Last week, Mastercard surpassed this entry point in heavy volume, a good sign that institutional demand for shares has returned in a meaningful way.
Thus, MA stock is a buy now.
The 5% buy zone goes up to 377.48.
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