Mr. Parker: I cover the transaction processors, essentially companies that use technology to process transactions. This ranges from payment processors to payroll processors to core financial technology processors. An example of some of the companies we cover include MasterCard, and Visa and Western Union, as well as ADP and Paychex on the payroll side, and Fiserv and Fidelity National on the core processing side. At their core, many of these companies are purely networks providing the electronic pipeline for a transaction to travel between two market participants.
TWST: Tell us about your ratings on the transaction processors.
Mr. Parker: We continue to favor the payment processors, like MasterCard and Visa, over some of the other industry segments. We believe that the underlying secular trends of those payment processors are currently stronger than for the payroll processors or the core processors, especially in these uncertain economic times. We believe MasterCard and Visa can continue to grow earnings 20% or greater on the bottom line as the companies benefit from the shift away from cash and paper-based payment methods to electronic-based payment methods. In addition, they receive a boost from easing headwinds with gas prices as well as cross-border picking up a little bit during the quarter, and from not being susceptible to some of the more U.S.-centric economic data points, like unemployment and interest rate, that the ADP and Paychex have been suffering through. We continue to remain attentive to Congress due to all the legislative focus on interchange rates and believe there is a misperception that regulating interchange could materially harm the business models for MasterCard and Visa. We believe the Street overreacted due to the uncertainty, which has created a great buying opportunity and risk/reward scenario.
Tickers included in this excerpt: ADP, BAC, FIS, FISV, MA, OMV, PAYX, V, WMT, WU
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