Payment Giants Slide on Stablecoin Buzz—Is Now the Time to Buy?

Key Points

• Online retailers and other entities have threatened to replace traditional payment processors with a stablecoin of their own, sending these names lower.
• Visa, Mastercard, and American Express have a few gauges for investors to consider this a dip-buying opportunity.
• Institutional buyers justified millions in purchases due to these factors.

Every economic cycle brings about a popularity contest that many legendary investors discuss. The short-term behavior of financial markets often gravitates toward what’s popular and trending among various investment circles, and that usually spreads to the most unexpected areas, including industries and companies themselves.

Today, it seems that the world of cryptocurrencies has taken that path, with companies now holding Bitcoin in their balance sheets as part of a completely unrelated strategy relative to core operations. The objective seems to be to make the stock popular among new investors and others who are riding on the cryptocurrency tailwind. However, as these seasoned participants know, fundamentals eventually start to matter again.

In this theme, some stocks in the financial sector have sold off on the belief that stablecoins will replace their services. While the bears might have won this battle in the short term, the bulls are likely to win the war in the end. This is why considering the dips in Visa Inc. NYSE: V, Mastercard Inc. NYSE: MA, and American Express Company NYSE: AXP may be some of the best opportunities today.

What’s the Stablecoin Threat?

Some online retailers, such as Amazon.com Inc. NASDAQ: AMZN, have announced plans to replace the tried-and-tested payment processors in today’s list with a stablecoin of their own, which would completely change the landscape that has been in place for decades.

While this seems exciting at first, investors need to remember why these payment processors are as big as they are today. There is a safety aspect to them, where customers can offset the risk of a fraudulent vendor, disputes, and even a last-minute change of mind.

The question now becomes whether platforms like Amazon will take on this risk model, letting their consumers have the same peace of mind that they now enjoy with traditional payment processors. There’s also the factor of a credit profile, as consumers will build a credit history by using these payment processors and their credit lines.

A Likely Winner: Visa Stock

Market share can be a great indication of who might win the race back to previous highs, and this is precisely where Visa takes the lead. By holding up to 39% of global transaction volume, compared to only 24% for Mastercard, it becomes clear that Visa will likely be the one to drive more bullish price action moving forward.

In fact, institutional investors have landed on this fundamental theme as well, as seen in the 9.6% boost in holdings from allocators at Voya Investment Management. A 9.6% addition to their holdings left them with a $704 million stake in Visa stock, indicating where the bulk of institutional buying was concentrated during this broader dip in the payment processor sector.

What’s more, Mizuho analyst Dan Dolev also took advantage to gain a few reputational points. Boosting a rating in Visa to Outperform and a $425 valuation, this analyst now thinks Visa can not only reclaim its highs but deliver a net rally of up to 25.3% and also get it to a new 52-week high altogether.

Mastercard Could Play Catchup

If investors are now wondering whether this institutional action makes it too late to consider Visa stock, then they need only look at Mastercard. This is not the obvious choice for institutions, considering its smaller market share. However, it remains in a dominant enough position to make it the second-best option.

As all things go, the risk-takers are now in Visa, hoping for a rebound into the new highs. On the other hand, investors who want a bit more certainty and are okay with not being first can consider Mastercard as a “catch-up” play, second to Visa stock.

With sufficient market share and market penetration to achieve it, UBS analyst Timothy Chiodo has also landed on a fairly bold outlook. A Buy rating that targets a valuation of up to $670 per share would compensate investors for their patience in this play, offering a 25% upside potential from its current level.

Volatility Protection in American Express

American Express holds the smallest share of both the United States and global transaction volumes, but there’s a reason for that. This company focuses on quality rather than quantity, limiting access to a specific type of customer, one that might not make it the most exciting stock to invest in, but is definitely the safest on this list.

This is especially the case as the United States consumer faces the pressures of inflation and economic uncertainty, making those with stronger credit scores better customers during times like these. This is why those from Voya Investment Management diversified their bets on Visa with a $47.1 million stake in American Express as well.

What’s even more interesting is the fact that up to 12.9% of American Express stock’s short interest declined over the past month as well, despite the unexpected sell-off. This is a clear sign that bears see no further declines on the horizon for American Express. This view is justified by the company’s stable business model.