Credit Card Industry: Strong Stocks With High Gain Potential
By Ann Sosnowski
In this article
A favorite Market Report credit card company Advanta will most likely be a “buy” after its 3-for-2 stock split.
Advanta, which we made gains of 13% on last year, has added more customers and is paying consecutive dividends.
Following Mastercard's IPO, Discover and Visa plan to go public, and will boost the credit card industry as a whole.
Credit Card Industry: Strong Stocks With High Gain Potential
For any of you who have read Taipan's Market Report for at least a year remember the free play that I recommended to you on Advanta Corp. (ADVNA:NASDAQ).
Advanta is one of the biggest credit issuers to small businesses. I recommended buying shares of the company back in June 2006 on the basic premise that credit card debt was continuing to worsen in America.
Additionally, Advanta is a small-cap stock, and I've always found more promise in lower market-cap companies than higher ones like Microsoft Inc. (MSFT:NASDAQ).
I ended up recommending a sell on Advanta in November 2006 before its topping formation and quick correction that followed in February of this year.
I was happy enough with 13% gains on ADVNA. But now I feel that it may be lucrative to enter the stock again at its current price.
Granted it's trading for $10 per share more than it was when I first recommended the company. But there's two specific reasons why ADVNA, and for that matter any credit card company, is a good investment right now.
Credit Card Industry: Advanta's Bullish Dividends and Stock Split
First, about ADVNA specifically. The company is really gaining shareholder loyalty. First of all, the company just declared another quarterly dividend of 26.56 cents per Class A share. On top of that, the company is also paying 31.88 cents per Class B share. Both of these dividends reflect its 25% increase.
In addition, the company is splitting 3-for-2 on June 18, making the stock cheaper and diluting the dividends. This means that the dividends will be 17.71 cents and 21.25 cents per share, respectively.
After the June 15 dividend payouts, the company will readjust its dividends at 50% for the 3-for-2 stock split.
I'm extremely bullish on the “right” kind of dividend stocks. Specifically, there's real growth for your portfolio when you buy what I call “Bonus Booster” dividend stocks.
Using this Bonus Booster strategy, you can predict which companies are going to increase their dividends and buy them ahead of their dividend increase announcements. You can make extreme gains when buying before anyone else knows by riding the stock up on announcement momentum.
It's a good alternative to “buy and hold” dividend investing that your father or grandfather believed in.
(If you want to learn more about my Bonus Booster strategy, my most recent Diligent Investor issue goes through it step by step, and offers recommendations on stocks that plan to increase their dividends. Learn more about joining Diligent Investor for $49 per year today.)
But that's not the only reason I like Advanta as a stock. Advanta had a very strong first quarter, which puts all of this company's ducks in a row. The business card issuer saw 97,000 new customers added to their lists and transaction volume increased 24% over the year before to $3.4 billion.
The company saw strong earnings, low credit losses, low delinquencies, and all of those new yet high-credit quality customer additions.
Credit Card Industry: Two New IPOs in the Works
Credit card companies offer fantastic returns. Heck, just look at the Mastercard Inc. (MA:NYSE) IPO. That stock has moved from $40.30 per share to its current price of $136 per share, a gain of 238% in only one year. That's phenomenal!
Diligent Investor subscribers were alerted to the Mastercard opportunity early and have over 200% gains on the position.
Now Discover card wants to reignite the excitement of credit card company stocks. Morgan Stanley (MS:NYSE) has already verified that it's spinning off Discover Card into its own public entity. Discover has 50 million customers on its books (including me, and probably you!) and is the fourth-largest credit network.
Visa International also plans to go public either this year or early in 2008.
The credit card industry is going to be a hotbed of success and profits. And with these two major players going public behind Mastercard, the whole industry is going to rise with it.
It's just like Chinese and Indian company IPOs. They just can't fail.
Keep an eye on Advanta Corp. (ADVNA:NASDAQ). Don't buy shares just yet. I want to see what happens following its 3-for-2 split.
But definitely keep it on your radar.
***
Ann Sosnowski is a small and mid-cap stock analyst for Taipan Financial News. She is the editor of Diligent Investor, a monthly newsletter that balances conservative and moderately risky investments that pertain to current market trends. She is also the editor of Diligent Investor Micro-Cap Hot Sheet, a monthly newsletter that finds the hottest penny and micro-cap stocks on the market.
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Related Resources
Credit Card Industry: Advanta's Business Credit Card
Credit Card Industry: Mastercard's Success Bodes Well for Visa (via MSN Money)
Credit Card Industry: Morgan Stanley Decides to Spin-Off Discover Card (via CNBC)