To get a great investment return, look for companies with a high barrier to entry. This likely means a sector only has a few players for customers to choose from. It also means that those companies can earn consistently high profits, which in turn is great for shareholders.
A company with a high barrier to entry has a powerful business model that can allow it to earn big profits. Investing when those companies are down can lead to great returns.
One area that investors can come back to time and again are the credit card companies. They’ve built up powerful networks that no startup could easily get into and break.
Right now, MasterCard (MA) is struggling, even after better-than-expected earnings.
In a sluggish economy, revenues are up 13% and earnings are up 11%. Even better, MasterCard’s powerful network effect allows it to make massive returns, as seen by its 45% profit margin.
Action to take: MasterCard and the other credit card companies are reasonable buys on any market drop, as they’ll eventually trend higher over time. With shares down about 9% from their recent highs, investors can start building a position now.
MasterCard also pays a 0.6% dividend with a long history of growth.
For traders, shares are likely to rebound from their recent pullback. The September $475 calls, last trading for about $12.00, could see mid-double-digit returns as shares rebound in the months ahead.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.