Wednesday morning. As usual I scour the financial news for anything involving first... names I have positions in, second... names that I am interested in having a position in, and third... names that might be interesting to write about. Eureka! That word came to mind as soon as I saw the headline. It's a fin-tech story, but every one of you knows the names.
Mastercard (MA) , a late 2019/early 2020 Sarge fave is reporting that Amazon (AMZN) , a semi-permanent Sarge fave, would tokenize stored credit card credentials for customers across 12 countries in North and Latin America, the Middle East, and Europe. Amazon will use Mastercard tokens through 2020.
Is this a big deal? It may just be. Tokens do not expire. Physical or saved credit cards certainly do. With tokens, payment information will be unique to each specific transaction, and only the merchant requesting that transaction will be granted access. As entire economies move closer and closer to embracing e-commerce more completely, and as this transformation has only accelerated due to the spread of this awful pandemic, innovative ways to both secure and unencumber the use of credit to make everyday purchases had to be created.
Why Do We Love Amazon?
Let me count the ways. Do we really need to? We already know that Amazon dominates the realm of this e-commerce. That specific business might run at thin margins, but the place of dominance both drives and ensures other, higher margin businesses. These would be the loyalty membership (Prime) program, as well as the growing advertising business. Do we move on? To services, including music and video. Hardware such as Alexa? Number one in the cloud? AWS, even under market share pressure from Microsoft (MSFT) remains atop that necessary migration that all businesses of all types will eventually follow.
As readers will see, the breakout for Amazon at 2200 provided for my 2625 target price that now appears to have been taken with enthusiasm. The closing of the purple pennant with an upside burst appears to confirm this.
- Target Price: $2970 (up from $2625)
- Eye On: $3175
- Panic Point: $2400 (up from $2030)
Why Do We Love Mastercard?
We don't. Not yet anyway. There is no doubt in my mind that these shares, even at these prices, remain discounted and will as long as both international travel as well as international commerce remains pressured. That said, is anyone willing to bet against the further digitization of money. I have a few twenty dollar bills on my bookshelf. They have been there since prior to the pandemic. I have not used cash since early March. How many others think like that. I can not be the only one.
Would I like to reenter Mastercard at some point? Sure, if I get my price. Let's take a look.
I don't know how many times I have seen such a nice looking cup with handle pattern. The only catch here is I am not quite sure that the handle is done being formed. Either way, the pivot will be found at the $316 level. You give me a take and hold of that level (with the shares trading at $305, and I think we eventually see a number in the $360's. This is how we get there from here. Mastercard reports on July 26th.
What I would like to do - and these markets trade quite thinly - so traders may have to work this trade a bit in order to get attractive pricing. But the general idea would be to get long the MA $315 July 31st calls, currently worth roughly $9.50, and pay for it by writing (getting short) the MA $290 puts at a rough $7.50, reducing the outlay to a mere $2. An adventurous investor could also sell the July 31st $260 puts for about $2 to even up the initial expense.
In the end, this trader is taking no equity stake up front, is purchasing the right to buy the shares at pivot upon expiration, while selling downside equity risk in order to finance the trade without using cash.