Insider Trading at Mastercard Inc (MA), Are Shares Too Rich?

Discover Financial Services (NYSE:DFS), American Express Company (NYSE:AXP) and Capital One Financial Corp. (NYSE:COF) are all credit card companies competing with Mastercard and Visa for spenders’ dollars. These credit card operators trade below the major debit card companies on a P/E basis – with an average P/E of 11x – but also have fewer growth prospects. All three companies have long-term growth rates that come in below 11% on average.

Discover trades the cheapest of the five financial stocks at 10x earnings and has a PEG of only 0.9. We would consider Discover the best value of the credit card companies, despite being up over 70% year to date; it has made recent initiatives to drive future growth by entering the promising e-commerce payments market. Discover is now testing fingerprint payment methods, and earlier this year announced plans to partner with Pay Pal to enter the mobile payment market.

American Express trades the highest of our credit card companies at 13x earnings, but it also pays the highest dividend yield at 1.5%. We believe that American Express is making strides to appeal to under-banked customers by beefing up its lower-end credit card offerings and prepaid cards. While these new offerings may open the card company up to more risk, it will be a fundamental driver for its expected 11% five-year growth. American Express is one of billionaire investor Warren Buffett’s top financial picks (see them all here).

Capital One is making an effort to take more advantage of spenders versus borrowers with its recent acquisition of ING Direct, which increased deposits by over 75%. Strapped with a banking unit, Capital One now plans to open brick-and-mortar institutions. The company’s stock also trades at a PEG that is less than 1.0, thanks to its solid long-term growth rate of 10%.

It’s possible that the large number of insider sales at Mastercard is a signal that corporate executives are seeing an overvaluation begin to bubble its way to the surface, so to speak. Meanwhile, we are still encouraged by the debit card and payment processing industry as a whole, and would consider Visa a better value and growth play at the moment.