Is VISA a Buy Now?

by Mike Holman

Yesterday was the highly anticipated initial public offering (ipo) of Visa – stock symbol “V” (you know you are big when you get a single letter) which ended up being the biggest stock IPO in American history. The stock was sold to (already) rich insiders, ie brokers,executives and various other people much richer than I, at a price of $44 per share.

As is often the case with “hot stock ipos”, the price started trading much higher (around $65) than the initial offering price and ended up the day at $56.50. So the huge financial gap between those rich insiders and myself, is ever so slightly larger as I write this.

The success of the VISA ipo is all the more surprising considering the fact that not once did I use my VISA card yesterday, so I’m guessing someone else perhaps took up the slack? 🙂

Is VISA a good buy now?

Hmmmm…..I have no idea. As I mentioned a couple of days ago I think that the amount of hype around this stock makes it a long shot to make money from trading in VISA shares but what do I know?? Well, I do know that if it was a good buy at the ipo price $44 (which apparently it was), it’s a lot less of a good buy at $56 which is quite a bit higher.

Who made money on the VISA ipo?

Not me (thanks for asking), but judging from the fact that 177 million shares were traded today out of a total float of 406 million – I would guess that a lot of the fat cat insiders who were able to order some ipo shares made out like bandits. Too bad the VISA investment bankers were not inspired by the Google Dutch auction system.

Anyone else?

From my extensive research it appears that the following institutions also made out like bandits in this deal:

  • Bank of America (BAC) – $625 million.
  • J.P. Morgan and Goldman Sachs – $500 million in fees.
  • Citygroup Inc. – $300 million.
  • Quest For Four Pillars Inc. -$0.00

Conclusion

The rich got richer, I’m still going to work tomorrow and VISA will probably do ok, but don’t expect the kind of returns that MasterCard has produced.

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{ 9 comments… read them below or add one }

1 Canadian Capitalist

Here’s the paradox about IPOs: If you [an average small investor – no offense Mike, I consider myself in that category too] want it, you won’t get it. If you can get it, you probably don’t want it!

2 Mr. Cheap

I often wonder if a decent strategy might be, after the IPO, to let the stock price run up for a little while, then short sell the stock. You’d obviously lose big on companies like Google, but from what I’ve read you’d make money overall (you’d be betting *against* the IPO).

Too risky for my tastes, but it might work for people with a different risk tolerance than mine.

3 Four Pillars

It kind of sucks that the “little guys” can’t get in on these deals.

Conversely, if the price jumps up 40%, doesn’t that mean the investment bankers underpriced the issue and shouldn’t get paid?? 🙂

Cheap – go for it! You can’t lose!

Mike

4 ThickenMyWallet

I wonder how much of this is institutions trying to find “safe” places to put their month this quarter?

As much as Google’s IPO was “fairer” just remember that Google has a dual voting class which grants the insiders a disproportionate amount of votes to the shares held. Give with one hand, take with the other…

5 Aaron Stroud

Stick with index funds and you too will own VISA stock. It’s easy to get distracted by flashy stocks, ipos, and huge gains big investors make, but low cost index funds are still the best way to invest when you have millions are you disposal.

6 Kyle

A related but much better investment than an IPOs are spin-offs. Whenever a large company spins off a small division and it starts trading by itself for the first time, they tend to be undervalued because all the large institutions that receive stock in the smaller spin-off will sell it immediately without bothering to do any research.

Ok, not ALWAYS. But more often than not.

7 Four Pillars

TMW – good point.

AS – I agree – index is the best!

Kyle – I don’t think I’ll be trying your strategy but it sounds interesting.

Mike

8 Nicolas

“The rich got richer”

Are you so sure? We still don’t know how Visa will do in the future. Remember Tim Hortons? I think that most discussions on this topic are still speculations and, if Visa shows good numbers at a decent price, then we’ll be able to say if we missed of got a good deal.

The rich might have gotten richer or the rich have so much debt that we all hope they had a good deal.

Cheers.

9 Four Pillars

Nicolas – I was talking about the fact that if you bought at the ipo price and sold anytime during the first day – you would have a 30+% profit thereby making you richer…

Disclosure: I have never owned and don’t currently any VISA shares… 🙂

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