Warren Buffett May Have Been Right to Bet on Mastercard and Visa

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By Jacob Maslow

Woman chargimng her groceriesIt is no secret that legendary investor Warren Buffett has been doubling down on credit card stocks. It appears that this legendary investor stock-picking genius is right on the money once again. According to Nomura equity analysts, Visa (NYSE:V) and Mastercard (NYSE:MA) are great stock picks. Even though these stocks face a historic ceiling of a 25 PE ratio, according to analyst Bill Carcache, the market has entered a period where the 25 PE ratio is too low.

I tend to agree with Bill Carcache based solely on one point. We are living in very interesting times, as far as market valuations are concerned. You have to understand that any market that prices Twitter at over $40 per share is irrational, if not outright crazy. That’s the kind of stock market we’re dealing with. And the culprit? Easy US Federal Reserve stimulus money. With all that money unleashed by the US Federal Reserve’s quantitative easing program, extremely risky stocks have become less risky. Not surprisingly, less risky stocks like solid credit card companies like Visa and Mastercard have become very attractive but overbought. With this type of background, going past the historical 25 times PE multiples is not unheard of. You’re not breaking an iron law by going beyond that otherwise sensible barrier. Why? We’re living in extraordinary times.

Of course, if the market goes through a correction, it is a good idea to value this market based on classical formulas. However, as long as the boom market continues, going beyond the multiple of 25 might be a good idea. Regardless of this short- to mid-term analysis, Warren Buffett probably doesn’t care. He’s already loaded up on these stocks and he’s going to hold on for the long-term. Still, this is a tremendous piece of evidence of Mr. Buffett’s amazing stock-picking skills.

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