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A $3.3 billion cluster
The sizing looks deliberate. Visa came in at about $1.1 billion, or 5.8% of the portfolio. Mastercard was about $1.1 billion, at 5.6%. And S&P Global was about $1.1 billion, or 5.4%.
The filing also shows Pershing Square sold out of Alphabet, a smaller position worth about $99 million at the end of March.
It also reported roughly a quarter fewer Amazon s than it held three months earlier, though Amazon remains a top-five holding even after the trim. And the fund returned to Netflix with a stake of about $934 million, four years after selling its previous position.
For scale, the largest single holding in the filing, Uber Technologies, represented about 13% of the portfolio. The new trio, taken together, was bigger.
None of them takes the credit risk
Visa and Mastercard run the rails that move money between a shopper’s bank and a merchant’s bank, and they keep a small fee from nearly every swipe. Capturing the sheer scale of those rails, Visa processed 71.7 billion individual transactions in its fiscal third quarter (the period ended June 30), up 10% year over year, with payments volume growing 10% on a constant-dollar basis. All of that swiping converted into $11.6 billion of net revenue, up 14%, at an operating margin near 60%. And Mastercard’s second-quarter gross dollar volume rose 8% on a local-currency basis to $2.9 trillion, with net revenue also up 14%.
Notably, neither company carries the loans behind those purchases. The banks that issue the cards take the credit losses. The networks collect their fee either way.
Expand
NYSE: V
Visa
Premium Feature
Moneyball Superscore
84/100
Today’s Change
(0.51%) $1.94
Current Price
$381.60
Key Data Points
Market Cap
$712BMarket cap calculated using publicly traded s outstanding only. Does not include unlisted, private, or dual-class non-traded s. Implied market cap may vary.
Day’s Range
$379.03 – $383.68
52wk Range
$293.89 – $385.57
Volume
4.6M
Avg Vol
8M
Gross Margin
77.16%
Dividend Yield
0.70%
S&P Global runs the same model on different rails. When a company issues debt, it pays S&P for a credit rating — a toll on somebody else’s borrowing. S&P Global’s ratings revenue rose 17% year over year in the second quarter, to $1.34 billion, with the transaction piece (fees for rating newly issued debt and bank loans) up 25%. And when investors buy index funds, the fund managers pay licensing fees, too. The company’s indices revenue rose 20% during the quarter, including 22% growth in fees tied to the assets sitting in funds that track its indexes.
In other words, all three get paid on activity they don’t have to create. The volume comes from everyone else.
Expand
NYSE: SPGI
S&P Global
Premium Feature
Moneyball Superscore
74/100
Today’s Change
(1.72%) $7.50
Current Price
$442.89
Key Data Points
Market Cap
$131BMarket cap calculated using publicly traded s outstanding only. Does not include unlisted, private, or dual-class non-traded s. Implied market cap may vary.
Day’s Range
$436.00 – $444.56
52wk Range
$360.94 – $522.35
Volume
1.3M
Avg Vol
2.2M
Gross Margin
63.43%
Dividend Yield
0.84%
The bet is durability, not price
The through-line, arguably, is staying power. Fee collectors these grow with total spending, borrowing, and investing rather than with any single product cycle, and they do it with little capital at risk. A recession can slow the volumes. It’s much harder to stop using the networks entirely. And the model throws off cash: Visa alone returned $6.2 billion to holders through buybacks and dividends last quarter.
Of course, durability that rarely comes cheap. Visa trades within about 1% of its 52-week high as of this writing, at a forward price-to-earnings ratio of about 26.
That’s a premium price for a business the market already knows is excellent, and a starting valuation that could cap near-term returns. The same goes for Mastercard. S&P Global is the exception, trading about 20% below its own 52-week high.
Expand
NYSE: MA
Mastercard
Premium Feature
Moneyball Superscore
85/100
Today’s Change
(0.60%) $3.57
Current Price
$595.30
Key Data Points
Market Cap
$521BMarket cap calculated using publicly traded s outstanding only. Does not include unlisted, private, or dual-class non-traded s. Implied market cap may vary.
Day’s Range
$592.08 – $598.02
52wk Range
$464.52 – $601.62
Volume
1.9M
Avg Vol
3.5M
Gross Margin
96.60%
Dividend Yield
0.57%
Sure, none of the three is a bargain. But I don’t think Ackman was hunting for bargains.
About a sixth of the portfolio ended the quarter in companies that get paid no matter which bank, borrower, or fund manager comes out ahead. After all, that fee gets collected in good markets and bad. I find it easy to see why he wanted all three at once.
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About the Author
Daniel Sparks is a contributing Motley Fool stock market analyst covering technology, industrials, financials, and consumer goods. Daniel is the owner and chief investment officer of Sparks Capital Management. He holds a master’s degree in business administration from Colorado State University. The Globe and Mail profiled him and his investing philosophy in an article titled, “This stock picker is outperforming nearly everybody else. Here’s how he is doing it.”
Stocks Mentioned
Visa
NYSE: V
$381.60
(+0.51%)+$1.94
Motley Fool Stock Advisor’s Latest Pick
—% Avg Return
Mastercard
NYSE: MA
$595.30
(+0.60%)+$3.57
S&P Global
NYSE: SPGI
$442.89
(+1.72%)+$7.50
Pershing Square
NYSE: PS
$42.17
(+0.12%)+$0.05
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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