Own Visa for 78% Less

Mar

2008

Written by Ann Sosnowski

It's Everywhere You Want to Be

Everyone wants a piece of Visa Inc. (V:NYSE) today, as it made its debut on the market.

Visa's 406 million shares were priced at $44 each in premarket, which is 11% above the expected range of $37 to $42 per share. At today's open, Visa jumped to $59.50 per share, up 35% more from the premarket pricing. That's an offering of $17.9 billion, the largest American IPO in the history of the market.

Visa is the No. 1 brand in credit and debit cards, issuing over 1.5 billion cards around the world through 16,600 financial institutions. A whopping 41 banks jumped on as underwriters on Visa's IPO, including JP Morgan Chase & Co. (JPM:NYSE) and Goldman Sachs Group Inc. (GS:NYSE).

Not At Risk

While many of you may think that Visa isn't a good investment with consumer credit and banking in the dumps, Visa doesn't take on that consumer credit risk; the banks do. Essentially, Visa makes revenue from the number of transactions on the cards issued to consumers and businesses through major banks as well as the dollar amount of purchases made on the cards.

As credit may take on a bigger role for consumers in buying simple purchases, like groceries, Visa is meant to make even more money on credit transactions, as well as the ever-popular use of debit instead of cash.

Additionally, in emerging countries, buying on plastic is gaining ground, especially for middle-class citizens. Visa has a 59% share of global retail electronics payments.

Incredible IPO Availability

And if you think you can't get a piece of the Visa offering, think again. The IPO put 52% of Visa's shares to the public, instead of institutions. JP Morgan and Bank of America are the biggest banks, with holdings at 23.3% and 11.5%, respectively. I've been watching the trades come through all day. Individual investors are able to buy the stock at 100- and 200-share blocks.

Only time will tell how Visa performs. But if it does well, it could very much be the boost that the IPO market has been looking for. Visa's successful IPO signals to banks that investing in new public companies that need money for financing will be a profitable undertaking.

Financial Sector Rebounds

Mastercard Inc. (MA:NYSE), Visa's biggest rival in the credit card processing industry, saw some buying earlier in the week but is down on Visa's IPO by about 2.1% today.

The financial sector, which has been wrecked by poor earnings recently (Morgan Stanley reported a quarterly profit drop of 42% this morning and mortgage-related write-downs of $1.2 billion during the same quarter), is seeing a bit of relief today, which I feel is partly related to Visa's IPO.

Morgan Stanley (MS:NYSE) jumped to an open of $45.26 today, after trading as low as $33.56 per share only two days ago. Both LEH and GS opened slightly up today, although they've fallen during intraday trading.

Banking on Positive Profit Margins

Looking at the financials for Visa, the recent quarter showed a net profit margin of 28.49%, while the company had operating margin of 46.10%.

However, full-year fiscals for 2007 show a company that lost 29% in profit margin and a loss of 40% in operating margin. It'll be interesting to see if Visa can keep the profit trend from last quarter intact. Industry insiders believe that Visa's profit margins should continue to grow, especially since customer acquisition for the company is extremely cheap.

Own Visa for 78% Less

There's two ways you can get in on the Visa IPO. You can go ahead and buy the Visa shares at market, which will cost you roughly $60 per share.

Or, you can take a look at our Secret IPO Fund, which is on the up and up with Visa's offering. In fact, this Secret IPO Fund costs 78% less than buying Visa stock but puts the success and profits of Visa's shares in your hands along with other extremely successful IPO stocks.

Visa's IPO is meant to stimulate the new stock issue market. And if that's the case, this $13 investment in the Secret IPO Fund is the best and cheapest way to get onboard the profit train.

Ann Sosnowski
Editor, Diligent Investor