We recently compiled a list of the 10 Best Beginner Stocks To Buy Now. In this article, we are going to take a look at where Visa Inc. (NYSE:V) stands against the other beginner stocks.
While investing in the stock market carries risk, the US stock market is generally considered a safe place to invest. It has a long history of growth and has consistently recovered from downturns, including major recessions and financial crises.
Over the last four to five years, the market has been hit by several unexpected downturns, due to a global pandemic and the Russia-Ukraine war, among other things, that crippled the global economy. However, the US broader market recovered swiftly and has been performing well since 2023. It is nearly 19% up year-to-date, as of August 23.
Nevertheless, it is still a complicated place for beginners and they should consider investing in shares of well-established companies with a history of stable performance and reliability. These stocks typically belong to large, financially sound companies that operate in diverse industries, such as technology, consumer goods, and healthcare.
Additionally, beginners can also look into index funds or exchange-traded funds (ETFs) that track major market indices like the S&P 500. These options offer diversification, which reduces the risk associated with investing in individual stocks while still providing exposure to the broader market’s potential gains. Investing in such well-established and diversified assets can help beginners build confidence and knowledge in the stock market. For such ETFs, you can check out our article on the best large-cap growth ETFs.
Opportunities and Caution for New Investors Due to Consumer Behaviour
On August 16, Melissa Minkow, director of retail strategy at CI&T, discussed the latest trends in U.S. consumer spending in a CNBC interview. Despite concerns about a potential recession, Minkow believes we might have avoided one. She pointed out that although consumers may feel like they are in a recession, their spending habits show otherwise. They continue to spend, especially when presented with discounts. Retailers have adapted by offering more targeted promotions this year, which has helped maintain consumer spending despite previous challenges like the pandemic and supply chain issues.
Minkow also noted that the effectiveness of promotions can vary across sectors. For example, quick-service restaurants like McDonald’s and Starbucks haven’t seen the same benefits from discounts as other retailers, partly because consumers may opt for more cost-effective alternatives like home-cooked meals. Additionally, brands that are already positioned as discount options might not see as much impact from promotions. However, retailers who offer significant discounts on desirable items can attract cost-conscious shoppers and increase sales volume, potentially offsetting the impact on profit margins.
For beginner investors in the stock market, the current retail sector dynamics offer both opportunities and challenges. The resilience of consumer spending, even in the face of economic uncertainty, suggests that certain sectors and companies could continue to perform well, especially those that effectively use promotions to drive sales. Retailers offering targeted discounts on popular items may attract more customers, boosting their sales volumes, which could lead to positive stock performance.
However, beginner investors should also be cautious. Not all companies benefit equally from promotions, as seen with the restaurant and food segment, where discounts haven’t significantly improved earnings. This highlights the importance of understanding the specific business models and market positioning of companies before investing.
The Market is Healthy but Caution is Advised
The U.S. stocks have seen a significant surge over the last few quarters, which are mainly driven by strong economic data and optimism about a potential soft landing for the U.S. economy. However, experts remain cautious as we discussed in our best defensive stocks article.
In the article, we discussed the J.P. Morgan report that noted the market’s heavy reliance on large, high-quality tech and AI companies, and it warned that maintaining this momentum could be challenging due to high valuations and potential market volatility. Here is an excerpt from the article:
“According to a July report by J.P Morgan, recent market trends have benefited large, high-quality companies, especially in tech and AI, which have resulted in high market concentration. However, maintaining this momentum in the second half of 2024 could be difficult due to high valuations and investor positioning. The report says that while U.S. market volatility is currently low, it could rise if conditions change.
According to Bruce Kasman, global growth is steady at 2.4%, with improved recoveries in Western Europe and emerging markets, along with a rebound in the manufacturing sector. Despite this, core global inflation is projected to remain around 3% in 2024, which could limit the potential for policy easing. Kasman warned that achieving inflation control and rate normalization might weaken demand and could interact with political factors to cause further inflation and central bank tightening.”
Our Methodology
For this article, we used stock screeners to identify large to mega-cap stocks with a revenue compound annual growth rate of at least 5% over the last 10 years. The companies we chose are well-known, well-established, fundamentally strong, and some also pay regular dividends. We listed the companies in ascending order of their hedge fund sentiment as of the second quarter of 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close-up of a modern payments terminal with a pile of credit cards on the side.
Visa Inc. (NYSE:V)
Number of Hedge Fund Holders: 163
10-year Revenue CAGR: 10.87%
Visa Inc. (NYSE:V) is a California-based leading American multinational payment technology company. It has established itself as one of the largest card payment organizations worldwide, and it enables electronic funds transfers across the globe through its vast network. VisaNet, the company’s global transaction processing network, plays an important role in authorizing, clearing, and settling payment transactions, which provides secure and efficient handling of millions of transactions each day.
In addition to VisaNet, the company operates the Plus ATM network and the Interlink EFTPOS network, which provide smooth access to funds and payment processing for both consumers and businesses. It also provides a range of additional services, including fraud prevention and risk management, data analytics, and loyalty programs, among others. It is among our best beginner stocks to buy now.
According to our database, 163 hedge funds held stakes in Visa (NYSE:V) in the second quarter, with positions worth $24.9 billion. With 16.8 million shares of the company, valued at $4.4 billion, TCI Fund Management is the largest shareholder of the company, as of June 30.
Visa (NYSE:V) is a prominent player in the global payment processing sector, distinguished by its extensive network and significant market presence. Despite common misconceptions, the company does not issue credit cards directly. It partners with banks and financial institutions that issue Visa-branded cards. These institutions manage credit risk and collect any unpaid balances, while the company focuses solely on facilitating the payment process through its vast network.
The company’s business model involves routing payments and charging merchants a fee for each transaction. The company then shares this fee with the card issuer and retains a portion as revenue. This setup positions Visa (NYSE:V) as a key beneficiary of the shift away from cash transactions, thanks to its established scale and brand recognition. According to Global Market Insights Inc., the payment processing solutions market, valued at $61.1 billion in 2023, is expected to grow at an annual rate of 10.5% through 2032.
With over 4 billion cardholders and more than 130 million merchants accepting Visa, the company has created a strong barrier to entry. This dominance ensures that even if the company adjusts its fees, it typically does not lose customers, as consumers prefer the convenience of Visa payments.
On July 24, Jefferies lowered the price target on Visa (NYSE:V) to $300 from $325 but maintained a Buy rating. The downgrade was influenced by a rare top-line miss and slower trends in July, coupled with challenges such as cross-border transaction slowdowns and ongoing merchant litigation. Despite these short-term hurdles, Jefferies believes that the company’s current valuation represents a solid entry point for investors. The company’s enduring strength in payment processing and its ability to navigate market fluctuations continue to make it one of the best beginner stocks to buy now.
Wedgewood Partners stated the following regarding Visa Inc. (NYSE:V) in its Q2 2024 investor letter:
“Visa Inc. (NYSE:V) detracted from performance despite healthy corporate results. The Company grew earnings per share +12% as payment volume growth was up +8% and cross-border payment grew +16%, adjusted for currency. There are over 4.4 billion Visa debit and credit cards in circulation generating over $15 trillion in volume over the past 12 months. There is another estimated $10 trillion in cash and check volume, globally, which we think Visa can continue to move over to its electronic payment rails. In addition, the Company has spent the past several years extending its payment capabilities into new flows of commerce, particularly for business-to-business transactions. This is another, extremely large (+$200 trillion) long-term growth opportunity for Visa that we believe investors are ignoring.”
Overall V ranks 5th on our list of the best beginner stocks to buy. While we acknowledge the potential of V as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than V but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Read Next: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.
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