I Shouldn’t Have Sold

Visa (V) and I shouldn’t have. I sold it in August 2009, around six months after the new Bull Market began. I had originally purchased V at during the 2007-2009 Bear Market on July 8, 2008 at $76 and sold on August 5, 2009 at $68 because I felt V could only give investors 15% per year. Boy, was I wrong. V is $222 this quarter.

The funds from the Visa sale were used to purchase Universal Travel (UTA) at $16. It was later sold in March 2010 at $9. I didn’t but anything in particular with the proceeds, not that there was much left.

I’m always trying to get back in V, but each time I look at the stock its a tad-bit too high. For example, Visa had a median P/E of 17 in 2011, so in 2012 Q1 when I looked at the stock, it had a P/E of 20 and I waited for a better price. The stock was $121 at the time. Did I mention its $222 now?

By 2013 Q1 the P/E had risen to 23 and I felt the stock was worth only 22 times earnings. V was $167 then. It’s $222 now, 33% higher.

What’s going on with Visa is two-fold. First the P/E is rising but also the earnings are coming in above expectations. For instance, in 2012 Q1 the company was expected to make $5.97 in 2012 and it ended up making $6.20. In 2013 Q1 V was expected to make $7.35 during that year and it made $7.59. During 2011 & 2012 the company had beaten the street each quarter, by a little each time. The little beats and upping of estimates combined with a rising P/E have made Visa one of the best stocks in the market.

One Year Chart

Here’s Visa today. P/E is now 25, which of course I feel is a tad too high. The trouble I have now is profits are expected to climb an average of 18% the next four quarters and at 25 times earnings this stock doesn’t have much upside. Of course, I’ve said this before. Many times. And have been wrong. Each time.

Still, if you look at the one-year chart you can see V has given me opportunities to get in on a dip. I’ve just passed (choked) on the opportunities each time. Around $175 last April was a perfect time to get in.

Fair Value

Visa has an estimated long term growth rate (from the one-year chart) of 18% a year. This is probably more like 20% per year. The company also pays a 1% dividend. I feel 23 times earnings is fair for this company. Visa is a tad overvalued right now. There, I said it again.

Sharek’s Take

I’m going to continue to try to hold out for a better value before buying into Visa. This is also the highest the P/E has been since I can remember and estimates aren’t rising like they used to. 2014 estimates were $8.90 a couple of quarters ago and are $8.88 now. Perhaps this stock will take a breather, maybe drop a little, and finally let me get back in.