The 1 stock I bought last month

Dots over the earth connecting the world

Over the last few months, I haven’t bought many stocks for my portfolio. There are a couple of reasons for this.

Firstly, I’m quite comfortable with both my overall asset allocation and my stock portfolio right now. Secondly, I prefer to buy stocks during periods of market volatility when share prices are falling.

However, I did buy one stock for my portfolio last month. Interested to learn what it was? Read on and I’ll tell you.

The stock I bought in July

I bought US-listed Visa (NYSE: V) in July. I already owned a few Visa shares before last month’s purchase. However, my holding was quite small. I decided it was time to boost my position in the stock.

Why I’m bullish on Visa shares

There are a few reasons I’m bullish on Visa right now. The first is that, in the short term, I expect the company to benefit from the reopening of the global economy.

Visa operates the largest payments system in the world. For every dollar spent in physical retail globally, around 15 cents goes through its network. For every dollar spent online, around 43 cents goes through its network. It takes a small cut on every transaction. As economies reopen, travel picks up, and consumers ramp up their spending, Visa should prosper.

Already, the company is seeing revenues and earnings grow as economies improve. In its third-quarter, results for the three months ended 30 June, the company reported a 27% year-on-year increase in revenue and a 41% jump in adjusted diluted earnings per share.

I don’t expect growth to continue at this rate forever. However, the near-term prospects are certainly attractive, in my view.

Secondly, this is a company with significant long-term growth potential. Today, the bulk of purchases globally are still paid for with cash. This is set to change in the years ahead. Over the next decade, trillions of transactions are set to shift from cash to cards and electronic payments. Visa should benefit from this trend.

It’s also worth noting that Visa has recently been making acquisitions in the financial technology (FinTech) space in order to future-proof itself. Last month, it acquired UK FinTech Currencycloud. These kinds of deals should help it prosper in today’s digital world.

Warren Buffett likes Visa

The growth potential is not the only thing I Iike about Visa. I also like the fact it’s very profitable. Over the last four years, it’s generated an average return on capital of 24%.

Additionally, I like the fact that the stock is owned by some of the world’s top investors. Visa shares are owned by both Warren Buffett and Terry Smith of Fundsmith.

Risks

There are risks to the investment case, of course. One is the valuation. Visa’s growth potential hasn’t gone unnoticed by the market. This is a popular stock and its valuation is high, at 37 times 2021 forecast earnings. If future growth is disappointing, the stock could underperform.

The company also faces competition from Mastercard, PayPal, and other FinTech companies. This is another risk to consider.

Long-term potential

Overall however, I think the long-term risk/reward profile here is attractive. I’ll be holding this stock for the long run and I plan to buy more shares on pullbacks.

The post The 1 stock I bought last month appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Visa, Mastercard, and PayPal and has a position in Fundsmith. The Motley Fool UK has recommended Visa, Mastercard, and PayPal. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.