The right growth stocks have the potential to turn pennies into millions. Here, we'll take a look at two outstanding growth stocks trading for less than $500 per share that investors can buy now and earn significant returns over the long haul.
The growing global adoption of digital payments has accelerated growth for fintech companies. Visa (V) and Mastercard (MA), longtime players in the game, have raised the stakes by expanding their digital payment offerings with the help of artificial intelligence (AI) and strengthening their market position.
Both of these fintech companies have earned a place in the closely followed equity portfolio of Warren Buffett's holding company, Berkshire Hathaway (BRK.B). Visa accounts for 0.7% of the portfolio's value, while Mastercard accounts for 0.6%. Let's find out why these Buffett stocks are a top investment pick right now.
Growth Stock No. 1: Visa
Visa (V), valued at $495.1 billion, is a major player in the global payments industry, offering a wide range of payment products and services to individuals, businesses, and governments. Its extensive network spans the globe, making it a trusted brand.
So far in 2024, Visa stock has gained 3.4% year-to-date, compared to the S&P 500 Index's ($SPX) gain of 17.2%.
Visa’s global presence is a significant advantage. The company operates in over 200 countries and territories, processing trillions of dollars in transactions annually. In the fiscal third quarter of 2024, Visa’s net revenue increased 10% to $8.9 billion, and adjusted earnings per share (EPS) jumped 12% to $2.42. While earnings were in line with analysts' expectations, revenue fell short by $25.8 million.
A strong 7% increase in payment volume and a 14% increase in cross-border volume boosted the third-quarter performance. Despite geopolitical tensions, consumer spending and global travel demand remain strong, leading to increased cross-border payments.
Management stated that Visa has expanded its partnerships around the world, and announced several new AI innovations that will boost the future of e-commerce. Notably, the strategic acquisitions of Expel, Prosa, and Pismo may strengthen its market position in the coming years.
The icing on the cake is that Visa pays dividends, with a forward yield of 0.77%. The yield is slightly lower than the financial sector average of 3.18%. However, the forward payout ratio of 18.8% indicates that dividends are currently sustainable, with room for growth.
For the full fiscal year 2024, analysts expect Visa’s revenue and earnings to increase by 9.6% and 13.1%, respectively. Further, in fiscal 2025, revenue and earnings are expected to increase by 9.8% and 11.5%, respectively.
Visa's extensive network enables it to capture a sizable share of the global payments market and lays a solid foundation for future growth, particularly in emerging markets where digital payment adoption is still improving. Visa reported $19.7 billion in cash, cash equivalents, and investment securities at the end of the quarter.
Turning to valuation, Visa is currently trading at 24 times forward 2025 earnings, which is lower than its historical average price-to-earnings (P/E) ratio of 34x.
What Does Wall Street Say About Visa Stock?
Overall, on Wall Street, Visa stock is a “strong buy.” Out of the 34 analysts covering the stock, 25 rate it as a "strong buy," four as a "moderate buy," and five as a "hold." The average target price of $303.84 is approximately 12.8% higher than current levels. Its high price estimate of $330 suggests that the stock could rise by up to 22.6% over the next year.
Growth Stock No. 2: Mastercard
Like Visa, Mastercard Incorporated (MA) is also a global leader in the payments industry, providing a diverse range of payment solutions and technologies. As one of the world's largest payment processing networks, Mastercard has consistently delivered strong financial performance, making it a popular choice among investors. Over the past decade, this fintech stock has returned 526.5%.
Valued at $441.5 billion, Mastercard's stock has gained 10.6% YTD, trailing the broader market's gain.
Mastercard's financial performance has been strong in recent years, demonstrating the company's ability to capitalize on global growth in digital payments. In the most recent second quarter, net revenue increased by 11% to $7 billion, driven by strong consumer spending and a 17% increase in cross-border volume, despite geopolitical tensions. Adjusted EPS also jumped 17% to $3.59. Both revenue and earnings surpassed consensus estimates.
Demand for consulting, data analytics, and marketing services also grew, resulting in an 18% year-over-year increase in the value-added products and solutions segment.
Mastercard is also a dividend stock, with a forward yield of 0.56%. Plus, its forward payout ratio of 15.8% indicates that current dividend payments are sustainable, with the possibility of growth.
In the second quarter, the company paid $615 million in dividends and repurchased $2.6 million worth of stock. Mastercard's financial health is one of its most important strengths. The company's balance sheet is strong, with significant cash reserves and low debt levels. It ended the quarter with $7.0 billion in cash and cash equivalents.
Analysts remain bullish about Mastercard's prospects in the coming years. Notably, analysts forecast revenue and earnings to increase by 11.3% and 16.8%, respectively, in 2024. In fiscal 2025, revenue and earnings are further expected to increase by 12.0% and 15.8%, respectively.
Currently, Mastercard stock trades at 28 times forward estimated 2025 earnings, compared to its five-year historical P/E average of 40.
What Does Wall Street Say About Mastercard Stock?
Overall, on Wall Street, Mastercard is a "strong buy.” Out of the 36 analysts that cover the stock, 31 have a “strong buy” rating, while two have a “moderate buy” rating and three analysts recommend a “hold.”
The mean target price for Mastercard stock is $513.69, which is 8.9% above current levels. Its high target price of $570 suggests a 20.8% upside over the next 12 months.
