Consumer borrowing is one of the key forces that drive the economy, which is why it's so great to see borrowing on credit cards and for auto and student loans surging as our financial system continues to recover from the impacts of the pandemic. The Federal Reserve recently reported that U.S. consumer borrowing climbed $35.3 billion in May from the prior month, which was the biggest jump on record. It’s clear that people are getting more comfortable with taking on debt as the job market improves and fears of a pandemic-induced recession are assuaged.
From an investing standpoint, there are plenty of companies that are well-positioned to capitalize on the rebound in consumer borrowing. It might be a good idea to increase your exposure to these businesses, as they should see a nice uptick in their earnings as a result. That’s why we’ve prepared the following list of 3 stocks to buy as consumer borrowing rebounds. Keep reading below to learn more.
1. Mastercard
It makes sense to look at a company like Mastercard (NYSE:MA) amidst a rebound in consumer borrowing, as it’s the second-largest global payment processor. While the company does not issue cards or extend credit, it should benefit from a recovery in consumer spending activity thanks to its fee-based business model that generates revenue on the gross dollar volume of activity on the products that carry the Mastercard brand. In Q1, the company reported gross dollar volume growth of 8% to $1.7 trillion, and it’s easy to envision a scenario where that figure rises throughout the remainder of the year.
Also, keep in mind that there is still plenty of ways for electronic payment services to grow, as cash is still widely used in a lot of countries around the world. It’s estimated that approximately 85% of transactions are still done with physical currency, which is a statistic that shows how promising electronic payment networks are going forward. Mastercard also has a nice opportunity to capitalize on e-commerce and mobile payments growth, and the company’s services like data analytics, consulting, fraud detection, and cybersecurity could also be strong growth drivers going forward. With so many secular trends working in Mastercard’s favor, it’s clearly one of the best stocks to buy as consumer borrowing continues to rebound.
2. Capital One Financial
Banks are another place to look if you are interested in playing the consumer borrowing rebound, as many of them issue credit cards and generate a lot of revenue from interest. That includes Capital One Financial Corporation (NYSE:COF), which is one of the largest banks in the United States. The company generated over 61% of its Q1 revenue from its Credit Card business segment and offers an attractive way to gain exposure to the consumer lending market. It’s also worth mentioning that auto loans are another important component of Capital One’s business model, which could be another area that rebounds through the remainder of the year.
Investors should note that Capital One partnered up with big-box retailer Walmart (NYSE:WMT) back in 2019 to start a long-term credit card program. Capital One is the exclusive issuer of Walmart’s private-label and co-branded credit cards in the U.S., which could be a strong growth opportunity for the company going forward. The stock has quietly been one of the best performers in the S&P 500 this year, as Capital One is up over 62% year-to-date.
3. Visa
Like Mastercard, Visa (NYSE:V) is another payments technology company that should benefit from things like higher consumer spending, pent-up demand for businesses in the services sector, and a recovering economy. It’s the world’s largest retail electronic payment network and a leading payments brand that helps consumers, businesses, and governments with payment solutions. The company’s processing infrastructure called VisaNet processes about 500 million transactions per day, and there are currently over 3.6 billion outstanding Visa cards, which are some staggering numbers to ponder as spending and borrowing pick up again.
Another reason to consider adding shares of Visa at this time has to do with its leadership position in the mobile payments space. As smartphones continue to get more popular in many emerging markets, investors might be underestimating just how quickly Visa might experience top-line growth over the next few years. The bottom line here is that Visa’s unmatched scale, huge addressable market, and exposure to consumer spending make it a great stock to consider adding at this time.