As consumer spending rises, should you buy Visa, Mastercard, or AXP stock?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Jul 10, 2021
  • The US consumer spending continued to expand in June, according to the latest economic figures.
  • The Visa spending momentum index (SMI) recorded 111.7 basis points for June, slightly below May’s 123.3.
  • Any figures above 100 indicate an expansion in consumer spending. Some stocks could benefit significantly.

On Friday, the Visa spending momentum index (SMI) showed that US consumer spending remains strong despite growing at a slower rate in June than May. June registered an SMI of 111.7 compared to 123.3 in May. However, any figure above 100 indicates expansion relative to the previous year’s figures.

Therefore, as US consumer spending continues to grow from last year, some stocks will benefit significantly. 

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Financial services companies like Visa Inc. (NYSE:V), Mastercard Inc. (NYSE:MA), and American Express Co. (NYSE:AXP) will witness significant growth in revenues.

So, which of the three stocks stands out for investment in July 2021?

Should you buy Visa stock now?

Visa is the largest of the three companies, meaning it will add the highest revenue as consumer spending increases. However, Visa stock looks substantially overvalued at the current P/E ratio of 56.58, while its forward P/E of 33.58 indicates low expectations on earnings growth for next year.

Source – TradingView

Technically, the stock price appears to be pulling back after rejecting overbought conditions in the 14-day RSI. Therefore, V shares seem poised for an extended pullback before making a significant rebound. Investors can target pullback profits at $233.38 and $227.89, while the resistance levels are $244.63 and $250.12.

Is Mastercard a good investment in Q3 2021?

Like Visa, the second largest of the three companies, Mastercard also looks overvalued. The stock trades at a trailing price-earnings ratio of 56.68, while its forward P/E is 35.49. Analysts have higher expectations of 32.74% EPS growth next year and an average of 21% for each of the next five years. 

Therefore, Mastercard looks like an exciting investment opportunity now, even at the current valuation.

Source – TradingView

Technically, MA stock seems to be enjoying strong support from the 100-day moving average. In addition, the stock still trades several levels below its 2021 highs, leaving room for more upward movement. Investors can target profits at $384.80 and $395.35, while the support levels are $362.38 and $350.08.

American Express bull-run has momentum

American Express looks like the most exciting buy among the three companies, with a P/E ratio of 27.48. Its forward P/E of just 18.32 is compelling, but its EPS growth projection for next year lags Mastercard’s.

Therefore, investors should consider why no one is willing to pay a higher premium for AXP shares. It could be due to the lower growth expectations. 

Source – TradingView

Technically, the stock seems to be on solid upward momentum. However, the AXP share price is trading just below overbought conditions in the 100-day moving average. As a result, it looks like a pullback is inevitable. Investors can target profits at $165.19 and $157.41. The key resistance levels are $180.22 and $188.26.

Bottom line: Mastercard looks like the best buy for July 2021

In summary, MA stock seems to offer the most upside potential compared to Visa and AXP shares. In addition, next year’s impressive EPS growth projection could boost upside potential.

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