Good News Should Boost a Top Oligopoly Play

While competition is great for consumers, it’s terrible for businesses. That’s why industries with a large number of competitors tend to have lower profit margins, and those with few competitors can perform well, offering shareholders fat profit margins for years.

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  • With some market turbulence at the start of the year, any positive news for an oligopoly company may get overlooked, which in turn could mean a bigger rally when stocks move higher again.

    Case in point? Visa (V). Shares took a hit last year on news that the company’s credit cards would stop being used for UK-based customers of Amazon (AMZN). Those plans have now been dropped.

    Visa’s part of a small network of credit card payment processors makes it a great company, with a staggering 51 percent profit margin last year and 29 percent growth in revenue. Despite that strong performance, shares are up a mere 6 percent in the past year, and are 15 percent off their 52-week high.

    Action to take: Investors should look to buy a great company like Visa at any point where it’s 15 percent or more off its 52-week highs. The company is also a dividend growth play with years of more increases ahead of it, although the starting yield is a bit low at 0.7 percent.

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  • For traders, a rebound in the coming months is likely. The April $240 calls, last going for about $3.25, can leverage a move higher, and potentially lead to high-double-digit gains.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.