The coronavirus is grinding businesses, schools and in some cases, entire countries to a complete halt. While life will eventually go on and people will begin shopping once again, Visa (NYSE:V) stock may still have downside ahead.
Don’t get me wrong, I love Visa from a company standpoint, and have owned Visa for a very long time. In fact, it’s one of the longest-held stocks in my long-term portfolio. I was lucky enough to pare down that position at $200, and even though I felt silly as the stock continued even higher, that rally felt overdone.
Given the latest pullback, I’ve had an opportunity to once more add to my stake. But I have reservations about building back a full position, even though V stock is 14.5% off its highs.
Coronavirus and V Stock
The coronavirus isn’t the only reason I’m concerned about Visa, but it’s the one I’ll begin with. There seems to be two camps when it comes to the virus. One thinks the world is going to end and the other thinks it’s nearly a hoax.
Those are extreme examples, but that’s kind of the point. We have some people stocking up on supplies and others that still won’t wash their hands. But one thing that’s hard to deny is the economic impact. Apple (NASDAQ:AAPL) slashing guidance, Delta (NYSE:DAL) reducing capacity and all sorts of events being cancelled are just a few examples.
People pay for these services with credit cards. They’re not necessarily all Visa cards, but they are cards. As we shift to a cashless society, there’s certainly a secular trend for companies like Visa to ride. However, when people stop spending — even temporarily — it’s a dagger for credit card companies.
Management is already acknowledging the impact. On March 2nd, company management said it expects a 2.5% to 3.5% impact to second-quarter revenue. They did not provide a full-year update though, and plan to do so when the company reports earnings.
It’s hard to be optimistic with so many economic pauses taking place around the world, that a company like Visa won’t feel the impact.
Oil Prices Are Getting Creamed
I expect the economy to be okay, despite the headlines from the virus, stock market and oil prices. At least, that’s my glass-half-full approach at this point in time. If plunging oil prices will eventually lead to falling gas prices, and the economy stays relatively healthy, it will be a huge win for U.S. consumers.
Maybe that will offset the negative impact Visa feels at the pump. You see, when the price of gas falls, the sum at the gas pump is lower, which hurts the top line for credit card companies. Now maybe consumers make up for that elsewhere — like the mall — or maybe they don’t.
Either way, lower gas prices are surprisingly a risk for V stock and its peers, even as consumers benefit.
Peer Panic
Visa stock is still well above its 52-week low, which was set one year ago down at $148.02. Obviously that figure will change as we lap the annual range, but it goes to show how well V stock has been holding up.
Down 14.5% after Monday’s notable market-wide bounce, it’s outperforming peers like MasterCard (NYSE:MA) and American Express (NYSE:AXP). MasterCard has fallen 19% from its highs, while Amex has dropped more than 25.5% and recently hit new 52-week lows.
It’s possible that V stock has bottomed, hitting $168.31 on March 9th. If that’s the case, then great. Bulls need the stock to reclaim and maintain above its 200-day moving average, then work on getting back above the $190 to $192 area. If it hasn’t bottomed, a decline similar to its peers could be in store. a 25% decline from the highs would put V stock down to $160, for reference.
I could be totally wrong about Visa. With a small position in the name, I hope that I am. But I can’t help but be cautious when I see companies cutting guidance, events being cancelled and oil prices falling. Visa will come out of this situation as strong as ever, but I believe the impact will be more than just the second quarter and that V stock could correct further as a result.
Will it be enough to thrust it to 52-week lows? Maybe not, but I’m certainly cautious right now.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long AAPL and V.