Consumer spending accounts for around two-thirds of U.S. GDP. Consumer spending though had taken a hit in the wake of the financial crisis of 2008. As consumers de-leveraged and cut back on their spending, the credit services industry was hit particularly hard. However, consumer spending has been seeing a strong recovery this year and this augurs well for the credit services industry.
The credit services industry is also adopting to new technology, especially mobile payments. We have seen significant consolidation in the industry as well in recent years. Having said that, let’s take a closer look at the hedge fund sentiment towards five credit services company that ranked as the most popular among the investors we track at the end of the second quarter.
An everyday investor doesn’t have the same resources and capabilities to analyze different publicly-traded companies as hedge funds do. This is why it is a good idea to see what stocks hedge funds like the most and try to imitate some of their bullish moves in an attempt to reap market-beating returns. At Insider Monkey, we follow the activity of several hundred of the best-performing hedge funds as part of our strategy. We analyze their 13F filings and use the data to see what stocks they are collectively bullish on. Through extensive research we have determined that the best approach to outperform the broader indices is to follow hedge funds into their top small-cap ideas. In our backtests, a portfolio of the 15 most popular small-cap stocks generated monthly alpha of 81 basis points, versus 0.7 percentage points posted by hedge funds’ top large- and mega-cap picks (see more details here).
Visa Inc. (NYSE:V) shares have been steady this year. Year-to-date, the stock has returned 5.8%, compared to a gain of just over 5% for the S&P 500. Visa also pays a quarterly dividend of $0.14 to its shareholders, however, at 0.68%, the stock’s dividend yield is not very attractive. Visa shares are currently hovering around their 52-week high of $83.63. Among the funds we track at Insider Monkey, 118 held $9.33 billion worth of Visa shares at the end of June, amassing 5.80% of the total outstanding shares. This compares with 106 funds holding $921.54 million worth of stock a quarter earlier.
Paypal Holdings Inc (NASDAQ:PYPL) has been recently assigned a ‘Sell’ rating by analysts at Credit Agricole SA, who also set a price target of $38 on the stock, which implies a downside of around 5% from the current levels. Year-to-date, PayPal Holdings Inc (NASDAQ:PYPL)’s shares have gained nearly 13%. Recently, the company announced an expansion of its partnership with MasterCard Inc (NYSE:MA). The expansion will allow MasterCard customers to utilize PayPal’s payment services, which should make the latter more competitive against other tap-and-point services like Apple Pay. Of the 749 funds in our database, 84 held $5.43 billion worth of PayPal Holdings shares at the end of June, versus 87 funds with stakes worth $564.06 million in aggregate at the end of March.
Meanwhile, MasterCard Inc (NYSE:MA) has been facing the largest damages claim in U.K. history. A Competition Appeal Tribunal in the U.K. has accused the company of charging excessive swipe fees. The claims could total nearly $19 billion, but MasterCard Inc (NYSE:MA) has said that it opposes the allegations vigorously. Nevertheless, the case has not had any impact on MasterCard shares so far and in the last month, the stock has gained more than 6%. A total of 82 funds tracked by us were long MasterCard at the end of June, having amassed $6.50 billion worth of stock, which is higher than 80 funds that had held $6.21 billion worth of shares a quarter earlier.
Head to the next page to read about two other credit services stocks that hedge funds are the most bullish on.
American Express Company (NYSE:AXP) shares have struggled this year, falling by more than 8% so far. However, recently analysts at Citigroup issued a bullish note on the company. According to Citigroup’s Donald Fandetti, American Express has the potential to achieve its 2017 profit targets in a “clean manner”, although the analyst believes that the company will have to show revenue growth improvement in order to drive significant multiple expansion. The analyst currently has a ‘Buy’ rating on the stock and a $70 price target. During the second quarter, the number of funds from our database long American Express Company (NYSE:AXP) declined to 48 from 52, but the total value of their holdings slightly advanced to $12.59 billion from $12.55 billion.
Discover Financial Services (NYSE:DFS)’s stock currently sports a healthy dividend yield of 2.08% and has generated decent returns, trading 7.60% in the green year-to-date and outperforming the broader market. Discover Financial Services is scheduled to release its third-quarter results on October 18 and analysts expect it to report EPS of $1.63. The number of funds from our database long Discover Financial Services inched down by two to 36, while the aggregate value of their positions slid to $944.15 million from $1.08 billion during the second quarter.