This could be the ‘perfect stock to own’ right now, according to a top investor

·3-min read
Chalkboard representation of risk versus reward on a pair of scales
Image source: Getty Images

Visa (NYSE: V), which is listed in the US, is the “perfect stock to own” right now. That’s according Joe Terranova, Senior Managing Director and Chief Market Strategist for Virtus Investment Partners, who frequently appears on CNBC.

I agree with Terranova. And last week, I bought more shares in the payments processing company for my Stocks and Shares ISA (it’s now my sixth-largest holding overall). Here’s why.

The perfect stock?

Speaking on CNBC’s Halftime Report show recently, Terranova said that he likes Visa as a geographical diversification play.

Noting that for the first quarter of 2023, Visa posted year-on-year cross-border (travel spending) volume growth of 24%, he pointed out that investing in Visa shares is a way to have participation in the post-Covid reopening that’s happening in the Asia Pacific region right now.

I like this investment thesis. With economic growth in the UK and the US a little subdued at present, I think Visa could be a great way to get exposure to growth in the near term.

A no-brainer

However, there are a ton of other reasons I like the look of Visa shares right now.

One is that the company offers a natural hedge against inflation. As prices go up, so do its revenues, as it takes a slice of every transaction on its network.

Another is that the company has minimal credit risk. Unlike banks, Visa doesn’t issue credit cards. It simply operates the payments network. So it’s not going to suddenly be hit by a wave of defaults.

A third reason is that the stock has recently been shifted from the Information Technology sector to the Financials sector. I think this could provide a boost as the stock should appeal to institutional investors seeking safer Financials shares (especially after the recent US banking crisis).

Finally, Visa is having a lot of success with business-to-business (B2B) payments at the moment. Over the last six months, it has signed roughly 30 banks across 20 countries for its payments services.

And management appears to be very confident about the future. “I have been at Visa for nearly a decade and I have never been more excited about the opportunities in front of us,” said CEO Ryan McInerney in last week’s quarterly results.

Add in the fact that Visa operates in a credit card processing duopoly with Mastercard (which I also own), and consistently generates a high return on capital, and I think the stock is a bit of a no-brainer right now.

A good long-term investment

Of course, there are risks here. If we were to see a major slowdown in consumer spending in the near term, the stock may underperform.

It’s worth noting the valuation here is relatively high (forward-looking P/E ratio of 27) which means there’s not a large margin of safety.

Overall however, I see a lot of appeal in Visa stock at present. I plan to hold on to it for the long run.

The post This could be the ‘perfect stock to own’ right now, according to a top investor appeared first on The Motley Fool UK.

More reading

Edward Sheldon has positions in Mastercard and Visa. The Motley Fool UK has recommended Mastercard. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2023