Cramer Gives Credit Where It’s Due

Visa is Cramer’s credit card of choice, at least when it comes to stocks.

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Strange, though, that a company as strong as this was left out of the market’s 132-point move on Tuesday. While the S&P 500 climbed 1.4% higher, Visa inched up just 10 cents, or 0.15%. But, ever the contrarian, Cramer saw that as a possibility, not a problem.


Investors always want to look for quality stocks that lagged the market after a big day like today. That’s where Visa comes in. This company is part of “one of the strongest long-term secular growth stories out there,” Cramer said, the switch from paper to plastic. As more and more people use their credit and debit cards rather than cash, Visa makes money on the growing number of transactions.

Visa already controls 60% of the electronic-payment market, and, more importantly, it holds double the share of its next closest competitor in debit cards, Mastercard . This is key because debit transactions, Cramer said, are expected to outgrow those of credit cards “for years to come.”

No doubt debit cards are a play on a more frugal consumer, a trend we’ve seen, obviously, because of the recession. After all, you can’t spend what you don’t have in your bank account. But Visa also works in a recovery. As the economy rebounds, consumers will have more money to play with, and they will feel more confident in using their credit and debit cards. Again, this is where Visa generates its revenues.

Another plus factor in Visa’s pro column is the earnings visibility. The company has said that 75% of its volume has been locked up through contracts, which include seven of the 10 largest deposit-taking institutions in the world. (Think: Even more debit cards.) Wall Street’s big-money investors look for this kind of certainty when they’re shopping for stocks, Cramer said, and they’re willing to pay up for it.

Now Visa and its peers took a hit when Connecticut Senator Christopher Dodd attached regulations regarding interchange fees to the credit-card bill that’s working its way through that house of Congress. But interchange fees are how the card-issuing banks get paid, not the credit-card companies themselves, so the decline was undeserved. Visa has yet to recover, though the pullback brings the share price to an attractive level, Cramer said. He’s been waiting to recommend this stock, and now the time seems right, especially because health care has pushed credit cards to the background.

Visa’s 20 price-to-earnings multiple maybe be a 35% premium to the average S&P 500 stock, but the company’s fetched as much as 100% more at one point. Considering that, and the 20% long-term growth rate, Cramer said, “I see this stock trading much, much higher.”

Cramer's charitable trust owns Visa.

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