My Third Stock Crush for 2013

Kyle is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

“It is better to be looked over than overlooked.” – Mae West

Last year when I started this glorious duty of blogging unrelenting waves of nonsense and throwing a few stock ideas here and there, I mentioned two crushes I had for the year of 2012. I had several thoughts, ideas, and opinions, probably about 51% to the good, so take it with a grain of salt. For our joyous New Year as the market eclipses 14,000, the S&P soars past 1,500, amid all the uncertainty, I have four stock crushes. I have already mentioned the first two (Yahoo!, eBay), and with this poetic post, I will mention the Third Stock Crush for 2013.

For my faithful, ever-growing fan base, you know how much I enjoyed Visa (NYSE: V), last year, and I will continue to hold it, probably until I get to enjoy my AARP discount, perhaps beyond. The stock continues to disregard 52-week highs, and should maintain pace this year. With a 47% gain in 2012, Visa was and continues to be everywhere I want to be. I amended my investing constitution, as I am no longer allowed to take any sort of profit with my long position. I love it, but it isn’t my crush.

Anyone who loves Visa has to feel much the same, if not more for Mastercard (NYSE: MA), even though the payment services giant only posted a 33% gain for 2012. Currently about $20 off 52-week highs (intraday, 2/1/13), the company simply forges ahead, regardless of Congress, cliffs or European recessions. I have no position with Mastercard, unfortunately, and it also is not my crush.

Looking at the valuations for Discover Financial Services (NYSE: DFS), I can only scratch my head and wonder how I completely missed this one last year. The company has a price-to-earnings ratio in the single digits (8.6). The reason for using italics (it looks cool), is because the P/E for Visa and Mastercard are 50 and 30, respectively. Discover simply boat-raced their payment processing brethren, moving up over 59% for 2012. Continued revenue growth and increased earnings per share should take the stock back up to 52-week highs ($42), and above.

Last year it was announced that Discover will process PayPal payments (see crush #2, eBay), which should increase transaction counts normally handled by Visa, Mastercard, and American Express. When the partnership was made known (August, 2012), over 3,000 locations accepted customer payment using PayPal, including the Depot brothers, Home Depot and Office Depot. Please don’t get me wrong, I still have intense feelings for Visa and Mastercard, I just see more upside potential with Discover this year.

I’m sure Discover is honored being named one of my stock crushes for 2013 (last year’s crushes are roaring). And there is no “wrong” investment with any of these names, whatsoever. Given the potential for more upside and the fact that Discover pays loyal shareholders a higher dividend yield for their patience (1.5% versus 0.9% for Visa, 0.2% for Mastercard), I’ve discovered a serious crush.

Motley Fool blogger Kyle Metivier owns shares of Visa and has no position with any other company mentioned.

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