Credit Card Companies Could Cash in on Jobs Creations
Phillip is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With the United States economy appearing to be on rebound and jobs spreading like wildfire, there is a sense of optimism about the economy that might be the strongest we've seen since the recession. The U.S. added 175,000 new jobs last month, after hiring an additional 150,000 in April, the Labor Department stated.
So with so many people securing jobs, what does that mean for credit card companies? After all, a survey by Manpower Group, an international employment services titan, says more employers throughout the U.S. are planning on hiring workers in the next quarter than in any period since 2008's fourth quarter.
What it all means
If a continued increase in hiring proves true, there will be a considerable number of people with money again. For American Express (NYSE: AXP), MasterCard (NYSE: MA) and VISA (NYSE: V) that means two things: more people will be able to pay off their credit card bills, and more people will be making additional purchases. In other words, credit card companies could cash in on late payments that have been piling up since the recession, and those same people will likely buy on credit again.
American Express's story
American Express has increased by about 35% year to date, and that is a substantial hike from moderate gains in the previous post-recession years. Consumers are gradually becoming more optimistic and even reached a six-year high in confidence recently. The economic recovery will mean increased use of credit cards, as people feel more comfortable making purchases. There will be a likely decrease in accounts receivable and an increase in revenue. Some doubt does linger, however, as American Express relies on public credit card debt for much of its earnings. The future may appear relatively uncertain, but the general economic recovery will fuel this stock's performance despite decreasing consumer debt.
MasterCard has a premium value, which could indicate the stock is ready for substantial growth. The company's past performance speaks for itself -- as the firm has had a return on investment of five times more than Visa since the recession -- but determining whether the future will repeat itself takes a bit of digging. The company is increasing its presence in China, Africa and the Middle East, which will likely provide a major source of revenue from not only those who live in these countries, but also from those who travel for business or pleasure. MasterCard is reportedly in negotiations with Kenyan banks, which would service a huge number of potential customers. As the standard of living in Africa improves, the 80% who don't use a bank will gradually decrease, and MasterCard is in a position to cash in.
VISA will see some of the same benefits, but the company is in a stronger financial position than American Express and MasterCard. The firm is nearly twice as big as both companies, and this could help to execute its vision of global payment options. The company is creating payment networks that will facilitate the ease for tourists and business people to use their cards seamlessly throughout the world. That's a move in which American Express hasn't been as active. Unlike VISA, American Express's growth is mainly driven by adding new products and services.
Global market is key to succes
In a constantly increasing global market, easing the international transaction process is becoming much more vital to credit card company growth, particularly as the economy improves across borders. While positive economic news will significantly affect credit card companies, and they will likely increase in value along with the recovery, it is also vital for these firms to play a major role in facilitating easy transactions throughout the world.
Phillip Woolgar has no position in any stocks mentioned. The Motley Fool recommends American Express, MasterCard, and Visa. The Motley Fool owns shares of MasterCard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!