After the market closed, American Express (AXP: $48.92; Market Value: $ 57B) announced expectations of slower spending and more late payments based on the payment patterns exhibited by its 85 million card members in the month of December. Reserves of $440 million are planned, shaving EPS estimates from the $4 per share most expect.
We sensed a short-sale story. Market value is almost 2-times Revenues. Discover (DFS: $14.26; MV: $6.8 B), with annual revenues of $4 billion, had a market value-to-rev ratio of 1.7…emboldening our short-sale thesis. Then, we checked out Mastercard (MA: $195.99; MV: $26B), and this is where is gets real interesting. Mastercard’s market value-to-rev ratio is 6.8 times (MA’s trailing annual revenues = $3.8 billion). This is one short story.
A year ago, American Express sold for $58 / share, almost $10 a share higher than today. Mastercard’s stock price a year ago was $111 per share. Clearly, some profit taking can be expected, and a short-sale point of view seems the way to go.
Also after the market closed, it was announced that Fidelity Management & Research, parent of FMR, had reduced its holdings in Mastercard to 5.2%, down from 10.2% last June 11th. The graph to follow vividly depicts the above–referenced stock price movements. A newly-appearing insider sale of stock is another reason for caution.
Our second short story is more pragmatic than dramatic. After the close, it was announced that New York Attorney General Andrew Cuomo is investigating possible anti-trust violations by Intel (INTC: $22.54; MV: 132 B). Intel’s nemesis in these legal battles is Advanced Micro Devices (AMD: $5.96; MV: $3.3 B). The fact that these legal issues are now starting to mount isn’t really the point, but rather a catalyst — Intel is a tired stock.
Here’s a graph since Intel went public — July 1986. Note the 7 stock splits, the last in July 2000. After that last split, the stock traded at $66 a share. The effect of being added to the Dow Jones Average in November 1999 had worn off. By the end of 2000, the stock traded at $30 a share — and that was 7 years ago. Use Intel as a source of liquidity. It’s dead money for at least a year.
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