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Paper or Plastic?

Monday, 2 Apr 2007 | 6:58 PM ET

By now you know that First Data agreed to be acquired by the private-equity firm Kohlberg Kravis Roberts for $34 per share. If you owned FDC, you made some money right there, but Cramer believes that there is another beneficiary to this deal. If FDC is worth $34, then Mastercard is easily worth $130-$140, he says.

In acquiring First Data, KKR made a bet on the worldwide use of plastic versus cash. Cramer believes they're right – but the target is wrong. The ultimate play in plastic isn't FDC, it's Mastercard.

Mastercard
The ultimate plastic play



Granted, the company has been involved in litigation that's kept the stock at bay and also held them back from using their $2.5 billion of cash – without any debt – in a huge buyback, Cramer says.

Neither Wall Street nor the media don’t seem to get this stock, Cramer says. They think it’s a money lender, but it’s the banks who lend money. Mastercard is just a play on transaction payments, which is a much better story, he says. They’ve processed 19 billion transactions this year – it’s simply an irreplaceable franchise.

Cramer says that the global increase in the use of plastic is a trend worth paying attention to. Mastercard has a huge presence in Europe and Latin America, which mean it’s got growth potential. They are also the number-two player in China – and the Chinese are issuing credit cards like crazy ahead of the 2008 Olympics. In addition, Mastercard has a contactless mobile payment system – essentially the ability to order something via cell phone – that Cramer thinks is going to be huge.

In the credit-card field, Mastercard is also the technological leader. The stock has organic revenue and is one of the few legit 20% growers in Cramer’s universe. They even blew out their first three quarters after going public with massive upside surprises, Cramer says, yet the Street treats them like they’re nothing. Meanwhile, Whole Foods grows slower yet gets a higher multiple. Starbucks grows at the same rate and gets a much higher multiple. And while FDC gets acquired at an enormous premium just because it’s a play on plastic, Mastercard just sits there. That can’t last, Cramer says.

Bottom Line: Cramer thinks MA could go as high as $140 per share. What are you waiting for?

Questions? Comments? madmoney@cnbc.com

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