Success Is In The Cards

In this edition of the Smart Investor newsletter, we examine one of the most profitable companies in the world. We are also taking steps to consolidate our portfolio, selling some non-strong-conviction holdings. But first, let us delve into the latest Portfolio news and updates.


Portfolio Stock Updates

❖Stellantis (STLA) saw its U.S.-listed stock surge on reports that the Biden administration is preparing to raise tariffs on Chinese electric vehicles. The Europe-headquartered STLA also rose after reporting that it achieved a #1 position in Middle East & Africa with a record 26% market share and maintained its #1 position in both EU30 and South America regions with 33% and 31.5% market shares, respectively.

❖ Taiwan Semiconductor Manufacturing (TSM) said that its April revenues surged 60% year-on-year, primarily driven by demand for AI semiconductors. The top line rose by 21% from March 2024, underscoring a strong start to the second quarter.

❖ Crane NXT (CXT) released its quarterly earnings data on May 8th, beating both revenue and EPS estimates and considerably increasing full-year 2024 sales growth guidance. The industrial company also announced that it has completed its acquisition of OpSec Security, forming a new Security and Authentication Technologies segment, which will consist of the Crane Currency division and the acquired firm.

❖ Regeneron (REGN) announced that its investigational gene therapy drug improved hearing in two children with a genetic form of deafness. The early results add to the growing body of evidence that gene therapy may improve outcomes for patients with deafness caused by gene mutations.


Portfolio Earnings and Dividend Calendar

❖ The Q1 2024 earnings season is almost over, with only one Portfolio company scheduled to release its quarterly results in the coming week. The reporting company is Applied Materials (AMAT), which will publish its fiscal Q2 2024 results on May 16th.

❖ The ex-dividend date for Applied Materials (AMAT) is May 22nd.



New Buy: Visa (V)

Visa Inc. is an American multinational payment services corporation headquartered in the San Francisco Bay Area. Visa is a global leader in digital payments, operating the world’s largest credit and debit card network.


History of Success

The company was founded in 1958 by Bank of America as the BankAmericard credit card program, which introduced the first-ever all-purpose credit card. Over the following several years, various banks licensed the program from BofA, forming a network of banks backing the BankAmericard system across the U.S.

In the 1970s, BofA gave up direct control of the program, with the various BankAmericard issuer banks forming a management consortium. The program grew and gained in popularity both at home and abroad, and in 1976 the global licensee banks assumed the name “Visa” for the program. Through these years, the Visa network was managed through four separate companies, until a restructuring in 2007 that led to the incorporation of Visa Inc.

Visa began publicly trading on the NYSE in 2008 following what was then the largest initial public offering (IPO) in U.S. history. Today, Visa Inc. is one of the largest corporations in the world, wielding a market capitalization of $562 billion and registering annual revenues of $34 billion. Visa ranks #137 on the Fortune 500 list of the largest U.S. companies.


Global Payments Duopoly

Over the past few decades, the world has been undergoing a secular shift from physical cash to digital payments, with the global digital transaction volumes exceeding cash for the first time in 2019. However, there are still hundreds of millions of people around the world, including in Western countries, with no or deficient access to cashless payments. As the transition to a cashless society progresses, more and more people gain access to payment networks, offering significant growth opportunities for digital payment facilitators.

Notably, Visa and its main competitor Mastercard form a global payment duopoly, with the two companies accounting for 90% of all payment processing outside of China. This market domination naturally gives them an enormous competitive advantage due to network effects, with Visa – the largest global payment network owner – expected to benefit the most.

Besides the growth opportunities, Visa’s vast network effectively protects it from competition. Another buffer from competition is provided by the fact that the largest and most important global banks serve as distributors of its credit and debit cards.


Winning Business Model

The company works with more than 14,500 global financial institutions, which act as the credit issuers for transactions processed through Visa’s vast networks. Over 4.3 billion Visa cards are held globally, with the company facilitating transactions between consumers, merchants, financial institutions, and government entities across more than 200 countries and territories in more than 160 currencies.

In 2023, the company oversaw more than 283 billion annual transactions, driving $15 trillion in payments volume. Visa holds a 40% market share of the global credit card processing volumes; in the U.S., its share reaches over 60%.

Visa generates revenue through transaction processing fees, service fees, licensing, and other charges, basically acting as a middleman between the card issuer/account manager and the entity receiving payment for goods or services. Banks and other financial institutions issue Visa-branded cards to their customers, whereas Visa provides authorization, clearing, and other services related to the transfer of funds. The company doesn’t carry any credit risks associated with payment transactions.

In addition to the virtually risk-free processing revenues, Visa’s business model has several other advantages. Visa gains from volumes: the more transactions made through its networks the more fees are received. And payment processing is a very scalable business, as an increase in transactions over an existing network boosts revenue without adding costs.

In addition, Visa’s business model is inflation-resistant, since its percentage-based revenues rise along with prices paid through its systems. While its revenues can be vulnerable to economic downturns, Visa’s extensive margins shield its profitability.


Fast-Moving Giant

Notably, Visa understood the risks to its leading position arising from the new industry players long in advance. These threats arise from digital wallet service firms like PayPal, Block, Apple Pay, and others, which now account for about a third of total U.S. and European e-commerce transactions. Even though most consumers link their digital wallets to credit cards rather than conducting direct bank transfers, this could change over time. In addition, the accelerating popularity of “buy now, pay later” services poses a significant threat to credit card providers.

To fend off these threats and to continue growing its market share, Visa invests in various technological solutions, such as contactless payment solutions, open banking, tokenization, crypto-linked cards, and more. Moreover, the company’s heavy investment in technology has produced VisaNet – a cloud-based payment digitization technology that facilitates secure and fast transactions with the help of machine learning (ML) and artificial intelligence (AI).

Visa’s modernization has been an internally funded process as well as a result of its strategic acquisitions of several high-technology fintech companies, such as a cloud-native issuer processing and core banking platform Pismo, Mexican payment processor Prosa, British foreign exchange solutions platform Currencycloud, open banking platform Tink, and many more.

In addition, Visa’s enormous network and close relationship with major banks provide it with such a significant edge that in most cases it is easier to collaborate with the giant than to try and compete with it. Thus, Visa’s logo can be found on cards issued by PayPal, Coinbase, Block, and other fintech companies. Visa also partners with both Google Pay and Apple Pay, facilitating their digital wallet transactions.

The company’s ability to keep up with the changes in tech and society helps maintain and grow its leading position in e-commerce, P2P payments, and B2B transactions. The accelerating global digital payments volume and Visa’s tech prowess mean that the company’s market presence is expected to grow for years to come. This outlook is also supported by Visa’s dependable, trusted, and secure brand.


Shareholder-Friendly Cash Machine

Visa Inc. boasts perfect financial health, underscored by its minute net debt and net interest income (the company earns more interest than it pays). The company’s capital efficiency metrics, such as return on equity, assets, and invested capital, are among the highest across all sectors, not only the Financials. Notably, with a gross margin of 98%, an operating margin of 70%, and a net profit margin of 53%, Visa ranks among the top 10 most profitable companies in the world.

The company has never registered a miss on revenue or EPS projections. In FQ2 2024 (ended March 31st, 2023), Visa repeated the pattern, delivering 10% year-over-year revenue growth on a strong increase in total payment volumes, which translated into an over 20% surge in adjusted EPS. The company ended the quarter with nearly $20 billion in free cash and an FCF margin of 48.5%. Visa has been growing steadily over the past decade, with revenue growth at a CAGR of 11% and an EPS growth at a CAGR of 15%.  Moreover, analysts estimate that the company’s EPS will grow at a CAGR of over 11% through fiscal 2026.

Visa’s capital allocation policies are exceptionally shareholder-focused, a stance strongly supported by its exceptional profitability and cash generation. The company rewards shareholders with dividends and share repurchases. Visa’s dividend yield of 0.7% is modest compared to the Financial sector’s average; however, the company has increased its payouts annually for the past 16 years. Its impressive annualized growth rate of 18% is expected to continue for years to come.

Furthermore, Visa performs aggressive buybacks, repurchasing 2.5% of its outstanding shares during 2023 alone, and over 10.5% of its shares since 2019. During the three months ended March 31st, the company repurchased shares for $2.7 billion, with $23.6 billion of buyback capacity remaining under the current authorization.

Visa’s stock has risen ~20% over the past 12 months, slightly underperforming the S&P 500. It seems that the markets largely overlooked Visa’s exceptional profitability and shareholder alignment. However, as the company continues to beat estimates quarter after quarter, it is moving into the investing world’s limelight. Notably, the stock reached its all-time high in March, though it has given back some of the gains since then.

At the moment, the stock seems to be fairly valued based on future cash flows, trading at the middle of the valuation scale for its peers (and way below its smaller competitor Mastercard). Taking into account its unmatched profitability profile and projected fast earnings growth, as well as dividend increases and aggressive buybacks, we view Visa’s valuation as moderate.



Visa Inc. is a digital payments industry leader with a massive market share slated to grow even more thanks to the company’s innovative approach and proactive management. Visa’s unparalleled profitability is a testament to the company’s strategic vision and operational excellence. With one of the fastest dividend growth rates in its sector and aggressive buybacks supporting its share price, Visa is a long-term income compounder. Considering these factors, we believe that V can be a valuable addition to the Smart Investor portfolio.



New Sell 1: Corpay (CPAY)

Corpay Inc., previously Fleetcor, is one of the leading global B2B payments companies, providing its clients with solutions to manage and control their expense-related purchasing and vendor payment processes.

Corpay’s largest market is the U.S., which is responsible for over 50% of revenue, with the second- and third-largest geographical sources of revenue being Brazil and the U.K. While the international markets at times produce higher revenue growth, large foreign exchange exposure can also create headwinds.

In addition, the interest rates are now expected to remain higher for longer than previously thought, weighing on business spending plans. As a result, there is a palpable weakness in some of Corpay’s business segments, which is not expected to be fixed in the next few quarters.

While the company exceeded analysts’ estimates in Q1 2024, management reduced its full-year guidance, citing unfavorable foreign exchange conditions and higher domestic and overseas interest rates.

Even as the company shared its intentions to take actions to manage expenses, it also announced an acquisition of a private accounts payable automation company. Investors did not welcome the news of a buyout coinciding with a soft revenue guidance, and the stock sold off.

Corpay retains strong financial health and long-term growth potential. We may revisit this B2B company when the macroeconomic picture brightens, but at the moment we believe it is appropriate to sell the stock.


New Sell 2: Jacobs Solutions (J)

Jacobs Solutions Inc. is an engineering services company, providing a diverse range of engineering, technical, professional, and construction services, as well as scientific and specialty consulting to industrial, commercial, and governmental clients globally.

Jacobs has a long track record of strong earnings growth under its belt. In fiscal Q2 2024 (ended March 29th) the company again beat EPS projections, with the revenue coming in line with analysts’ estimates.

The company’s management narrowed its outlook for adjusted EBITDA and EPS for the full FY 2024. While the EPS guidance remained unchanged at the midpoint, the EBITDA outlook was slightly lower at the middle of the projection range.

Reading into the details of the earnings report, there were some warning signs, such as lower net income and a decrease in net profit margin due to higher expenses. Apparently, the increase in the expenses is at least in part attributable to the company’s decision to proceed with its stock repurchases, spending more than $95 million on buybacks over the quarter. This has been beneficial for Jacobs’ shareholders in the short term; however, the decision to perform repurchases near the stock’s all-time high, while at the same time stating a commitment to “focus on cost optimization”, raises some questions.

Jacobs remains a financially healthy company with a robust business and solid prospects. However, the latest developments impacted our outlook for the stock in the next several quarters. Taking all this into account, we believe it’s time to let go of the stock.


New Sell 3: Cencora (COR)

Cencora (formerly AmerisourceBergen) is one of the world’s largest drug distributors. Cencora, McKesson (MCK), and Cardinal Health (CAH) together hold about 90% of the U.S. pharmaceutical wholesale industry.

Cencora is a large, stable, and profitable company with a long track record of delivering better-than-expected earnings outcomes. In its FQ2 2024 (ended March 31st) the company surpassed EPS estimates again but missed on revenue projections as sales were constrained by the shortage of highly popular weight-loss drugs. The company expressed certainty in sales improvement for the rest of the year, raising the lower end of its FY 2024 EPS guidance. Apart from a decline in net cash from operations and a reduced CapEx – which, if continued, may stifle growth going forward – the report was a positive one. However, it was not received well by the markets, with the stock falling strongly since the release.

Notably, the pharmaceutical distribution industry has been under some pressure lately as the Inflation Reduction Act continues to reshape regulations and introduce pricing pressures across market participants. These developments led some Wall Street analysts to reduce their price targets on COR stock. At the same time, some company-specific news impacted investor sentiment toward Cencora, including management transition and a cyberattack on its systems.

Cencora’s main competitor, McKesson (MCK), is a Smart Investor Portfolio company. MCK has nearly twice Cencora’s market cap, a wider economic moat, and a larger market share; it also carries better analysts’ ratings. Given the industry-wide challenges, we believe it’s time to reduce our exposure to the sector, retaining the industry leader, and letting go of COR. However, we may revisit the stock in the future, after the industry backdrop improves.



Portfolio Stocks Under Review

❖ Flex (FLEX): we are placing this contract manufacturer under review due to the heavy insider selling of the company’s stock in the past week. Flex last revealed its results on May 1st, surpassing analysts’ revenue and EPS estimates for its FQ4 2024 and beating full-year EPS projections, but slightly missing on annual revenue. The company announced a restructuring plan aimed at reducing its workforce and enhancing operational efficiency.



Smart Investor’s Winners Club

*The 30% Winners Club includes stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.

The markets ebbed and flowed over the recent week, but our exclusive club’s ranks remained unchanged and include 12 stocks: SMCI, GE, AVGO, ANET, EME, TSM, AMAT, APH, GD, ORCL, PH, and ITT.

The next in line to enter the Winners’ ranks is now the “fallen angel” Stellantis (STLA) with a 27.7% gain since purchase, whose strong rebound may help it return to the club. Will it close the gap, or will someone else outrun it to the finish line?



Smart Investor Portfolio

 Portfolio Return YTD
Portfolio Volatility (Beta) Portfolio Dividend Yield
16.83% 1.00 0.86%


New Portfolio Additions

Ticker Date Added Current Price
V May 15, 24 $277.74

New Portfolio Deletions

Ticker Date Added Current Price % Change
CPAY Jan 17, 24 $283.30 -0.24%
J Mar 13, 24 $137.87 -7.58%
COR Mar 20, 24 $221.94 -8.42%

Current Portfolio Holdings

Ticker Date Added Current Price % Change
SMCI Nov 8, 23 $822.37 +221.99%
GE Jul 27, 22 $160.00 +186.33%
AVGO Mar 22, 23 $1380.03 +118.73%
ANET Jun 21, 23 $313.66 +107.02%
EME Nov 1, 23 $374.26 +81.35%
TSM Aug 23, 23 $151.95 +62.01%
AMAT May 31, 23 $209.82 +57.40%
ORCL Dec 21, 22 $120.87 +48.31%
APH Aug 9, 23 $128.56 +45.36%
GD Dec 22, 21 $294.06 +44.32%
ITT Oct 18, 23 $137.52 +43.98%
PH Oct 11, 23 $549.40 +38.11%
CI Jul 12, 23 $346.42 +28.93%
STLA Sep 6, 23 $23.32 +28.41%
VRTX Aug 2, 23 $428.59 +23.25%
HWM Apr 10, 24 $80.88 +22.82%
MCK Dec 13, 23 $551.58 +19.35%
AIT Dec 6, 23 $195.72 +18.81%
CXT Oct 25, 23 $60.66 +17.19%
DELL Mar 27, 24 $134.12 +16.98%
CHKP Jul 19, 23 $148.91 +16.96%
TXT Nov 29, 23 $88.10 +14.55%
ELV Mar 6, 24 $534.63 +7.28%
SNX Apr 3, 24 $123.33 +5.93%
AIG May 1, 24 $79.44 +5.48%
REGN Feb 7, 24 $984.64 +4.99%
FLEX Feb 21, 24 $28.99 +4.54%
PYPL Apr 17, 24 $64.58 +1.81%
DOV May 8, 24 $183.71 +1.03%
CBOE Apr 24, 24 $180.61 +1.00%
AIZ Feb 28, 24 $177.33 -2.43%
WRB Jan 31, 24 $78.83 -3.43%



What’s Next?

Our next commentary will come out on Wednesday, May 22ndUntil then – we wish you a world of investment success!

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