Motley Fool: Charging forward with Mastercard

Mastercard (NYSE: MA) has taken a hit from the ongoing COVID-19 pandemic, as more people staying home means less spending overall – especially in categories such as travel. The payment processing giant’s profit dropped 9% year over year in the first quarter of 2020, while revenue growth slowed to only 3%. But the headwinds from the coronavirus outbreak will only be temporary.

The pandemic could even boost Mastercard’s prospects over the long run, by further accelerating the expansion of e-commerce. Consumers have shopped online more while they’ve been stuck at home – and they haven’t used cash or checks to make purchases. They’ve either used credit cards or digital payment methods, many of which rely on Mastercard’s huge payment processing network.

It’s not just individual consumers who are shifting away from using cash and checks, either. Mastercard recently launched a business-to-business platform called Track, which enables businesses and their suppliers to use multiple electronic payment methods in their commercial activities.

The future seems likely to feature significantly lower use of cash and much higher use of digital payments – and Mastercard is poised to profit from that transition. In the near term, though, it has more than $10 billion in cash (as of the end of its last quarter), enough to withstand a lot of coronavirus-related disruption to its business. (The Motley Fool owns shares of and has recommended Mastercard.)

Ask the Fool

Q: Is this a good or bad time to buy stock in cruise companies? – G.L., online

A: It might seem like it’s a great time to buy, as some cruise operators saw their shares sink by more than 70% from January to March, and those stocks are still struggling to recover. Market crashes do produce a lot of stock bargains, after all. But not every fallen stock is a bargain. Many are tied to companies facing difficult challenges, and you need to figure out whether the challenges are likely to be fleeting or lasting.

With a global pandemic raging, the idea of taking an ocean cruise in close quarters with thousands of people has less appeal than it used to. Once a vaccine has been found and the threat from the virus can be managed well, the travel industry overall should see business improve. But whether demand for cruises will return to previous levels is unknown. A longer pandemic may even lead to some cruise operators declaring bankruptcy and wiping out shareholders.

There’s simply plenty of uncertainty and risk right now – for the cruise industry and other industries. You may want to wait for that to abate, or just look for companies in which you have a lot of confidence.

Q: How do we know when we’re in a recession? – M.K., Elyria, Ohio

A: There are different definitions of the term. One, for example, requires two consecutive quarters of declining gross domestic product (GDP), adjusted for inflation, before a recession can be declared. Another looks for several months of widespread, declining economic activity. An extreme, or protracted, recession is often referred to as a depression.

My dumbest investment

My dumbest investment was loading up on shares of Disney before it bought Star Wars – and then selling the shares after a while, as they weren’t performing well, and I got bored.

Of course, Disney has skyrocketed since then. I learned to step back and look at the big picture – and to hold on to things a bit longer! – J.L., online

The Fool responds: Walt Disney bought Lucasfilm – and the Star Wars franchise – for around $4 billion in 2012, in a transaction that some have referred to as “the deal of the century.” Within three years, Disney’s stock had more than doubled. Within six years of the purchase, Disney had produced four Star Wars feature films, and they had grossed close to $5 billion, more than covering the cost of the acquisition.

Getting bored with an investment isn’t a bad thing, if you’re invested in a healthy company with a lot of growth potential. Patience is a key asset if you want to build wealth through investments in the stock market. The stock of great companies will generally go up over the long run, but there can be bumps and occasional stagnation along the way. Before selling, you might have asked yourself how Disney could make money off the Star Wars franchise – via films, merchandise, theme park attractions and so on. If Disney’s overall future seemed bright, you should have hung on.