Today’s note highlights two stocks, Mastercard (MA) and Visa (V) that are timely technical ideas. They are a good way to straddle the two key areas of the equity market, growth and cyclicals that Tom Lee, Brian Rauscher and myself, have been encouraging investors to build exposure to as part of a barbell portfolio.
The first side of the barbell are secular growers that do very well in most economic environments. Many have moats around their businesses that make it tough to compete with, others are growing by disrupting entire industries, while others are developing completely new products that never existed in the past. We at Fundstrat recommend investors maintain exposure to these stocks which were leaders heading into the pandemic and only strengthened their lead during the recent crisis.
The second group are cyclical growers, such as industrials, materials, energy, consumer discretionary and select financials, that are sensitive to the ebb and flow of the underlying economic cycle and were sold off aggressively during the March decline. Understandably, cyclicals are some of the toughest stocks for investors to buy given the weak and uncertain economic backdrop. However, as Tom, Brian and I have highlighted regularly in our notes, there is evidence these stocks are incrementally improving. Some, such as housing and transports, are in strong uptrends while others still appear to be carving out broad bottoming profiles waiting for evidence the economy is recovering. Stocks that are dependent on consumer discretionary spending have notably lagged, but as Tom Lee has pointed out, these stocks are likely to have violent upside reactions once COVID-19 worries begin to recede or the prospect of a vaccine emerges.
So, what makes MA and V noteworthy technically? First, both MA and V are in secular uptrends which is defined by the rising 200-week moving average illustrated in red. What I find interesting is that both stocks paused from early June along with most cyclicals BUT are now in the early stages of reaccelerating. MA has broken out and has rallied above its June highs at 316 and should rally through its Q1 2020 highs at 347. V looks to be close behind as it begins to break out above its June highs at 202 and is starting a new up-leg that should see it challenge and rally through its 2020 highs. The bottom line is that both MA and V are secular growth stocks that will also benefit from the consumer beginning to spend more.
Bottom line: Mastercard and Visa are two technical ideas covering two areas of the equity market the Fundstrat team encourages our clients to increase their exposure: growth and cyclicals. These stocks were leaders heading into the pandemic and only strengthened their lead during the recent crisis.
Both stocks are in secular uptrends, and as Tom Lee has pointed out, they are likely to have violent upside reactions once COVID-19 worries begin to recede or the prospect of a vaccine emerges.
Figure: Weekly Sector Review
Source: FSInsight, FactSet
Figure: Best and worst performance sectors over past 3 months
