Oligopoly Stocks Set for Solid Returns on a Return to Pre-Pandemic Spending

Last week saw a large number of companies reporting earnings for the second quarter of the year, as well as a strong GDP report. The most important data? The fact that the US economy has now surpassed its pre-Covid levels.

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  • There’s still a long way to go, especially among lower-income workers. But the trend also points to more profits ahead in one key sector.

    That sector? Financial services, especially credit card spending. Mastercard (MA) reported solid numbers last week, hitting $4.5 billion in revenues. That’s a 3.7 percent beat. More importantly, the company beat on earnings.

    While there may be some lingering fears over the delta variant, it’s clear that customer spending remains robust, even after stimulus and extended unemployment benefits have been provided.

    Mastercard is a bit pricey in terms of earnings, but the company is part of an oligopoly in credit card payment processing. With a 42 percent profit margin, business is good, and even small increases can lead to big returns.

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  • Action to take: Investors may like shares. While they have a paltry dividend under 0.5 percent, MasterCard has a history of growing its payouts over time.

    For traders, shares have been moving steadily higher over the past few months. A trade like the November $400 calls, last going for about $17.00, could lead to mid-to-high double-digit returns in the coming weeks.

     

    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.

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