V

Visa Inc.

205.51
USD
4.51%
205.51
USD
4.51%
185.91 252.67
52 weeks
52 weeks

Mkt Cap 346.83B

Shares Out 1.69B

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This Warren Buffett Stock Has Built the Ultimate Moat

Legendary investor Warren Buffett and his company Berkshire Hathaway have long valued stocks that can build an economic moat, which is a competitive advantage that enables a company to achieve superior profit margins and pricing power. Few have been able to achieve a stronger moat than the largest payments rail in the world, Visa (NYSE: V). In fact, I think it's fair to say that Visa has built the ultimate moat. Here's why. The largest payments network in the world Consumers and businesses need to be able to efficiently move money back and forth, and Visa is arguably the single most important company in helping facilitate this. Visa runs the most ubiquitous payment network in the world. It operates in more than 200 countries and is used by more than 100 million merchants. In 2021, total volume through Visa's network came in at more than $13 trillion. Furthermore, there are more than 3.8 billion Visa cards that have been issued all over the world. While Mastercard is another excellent stock that has built a strong payments network, the company saw much less total volume of $7.7 trillion come through its network in 2021 and has more than 2.5 billion cards in circulation. Visa not only sets the rules for its network but also acts as the central player in all payment transactions that go through the network. In its core business, Visa facilitates the movement of money by authorizing transactions between the issuer and acquirer and also helps move funds between the two parties as well. Evaluating Visa and its moat is fairly easy. Given that it sets the rules for the largest payments network in the world, it certainly has pricing power -- not that it doesn't receive pushback from key participants in the network. But for every transaction that runs through its network, Visa collects a small fee, which is why many compare Visa to a tollbooth on the highway. Its excellent business has helped the company generate strong margins. Furthermore, Visa will continue to benefit as the world continues to leave cash behind, a trend that has been accelerating due to the pandemic. For instance, in Latin America and the Caribbean, which Visa's management team has mentioned as an area seeing a lot of shifts toward digital payments, total volume across Visa debit and credit cards in the region came in at $1.07 trillion for the fiscal year 2022, up from $824 billion in the fiscal year 2021. Visa is also a company that can do well during a high-inflation environment, like the one we're in now. First, a lot of costs to set up its payments network are fixed. Second, its fees are a percentage of a transaction, so if the cost of goods and services goes up, Visa simply makes more in fees. A recession could certainly lower consumer spending, which drives Visa's business, but so far the company hasn't felt any pain. On its most recent earnings call, Visa's CEO Al Kelly said, "At this stage, in terms of volumes, we have seen no noticeable impact due to inflation, supply chain issues, or the war in Ukraine." Furthermore, Visa provided a strong outlook for the current quarter, despite taking a hit from suspending its operations in Russia. Hard to replicate Visa has all the makings of a great moat. It would be difficult and take lots of time for another company to set up a payments network with the same scale. The company has strong profit margins and lots of opportunities ahead as cash becomes less popular. It can also hedge inflation. While there are certainly threats to its business, whether from blockchain technology, digital currencies, or new payment networks, Visa is big enough and has the resources to build similar technology and incorporate it into its network or acquire competitors or partner with them. The company has been very successful in the past at overcoming business threats. It is for all of these reasons that Buffett and Berkshire have owned the stock for many years. 10 stocks we like better than Visa When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* They just revealed what they believe are the ten best stocks for investors to buy right now... and Visa wasn't one of them! That's right -- they think these 10 stocks are even better buys. *Stock Advisor returns as of April 7, 2022 Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway (B shares), Mastercard, and Visa. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

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