Online spending is still booming and shows no sign of reversal. To take advantage, investors should buy credit card transaction processors, notes Jon Markman, editor of Strategic Advantage.

Mastercard (MA) has a business model that is entirely devoted to killing cash. And they love online shopping because they get a cut of all of those sales. The power of this business cannot be overstated. They are making a fortune because they are pure transaction processors.

They have no credit risk thanks to arrangements with banks, the card issuers. Missed payments and defaults are relevant only in the sense that these hiccups slow overall consumer spending. However, even that doesn’t change the fundamentals of the business model.

Mastercard released a presentation in October with its third quarter financial report. The New York-based firm logged $2.1 billion in operating profits on only $3.8 billion in sales. That’s a 54.9% gross margin … during a pandemic. Profits were $1.6 billion.

Imagine a world without cash. That’s the future Mastercard managers are pushing. The company will get a small cut of every transaction, regardless how small, when consumers tap, swipe checkout their virtual shopping carts.

When consumers buy games on their iPhones, Mastercard gets a cut. The same is true for purchases at retailers and restaurants. The business is a gold mine.

Investors have noticed. Mastercard shares have risen an average of 31.7% for the past 10 years. Doing the quick math, a $5,000 investment made 10 years ago would be worth $114,239 today.

Based on operating margins alone I believe the stock can reach $470 within 12 months. At a current price of $355.70 that is a 32% gain — maybe enough for you to pay off your holiday gifts bill.

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