Embedded at the core of investing lore, Warren Buffett stands emblematic of the long-term ethos. Nestled within his esteemed Berkshire Hathaway (NYSE: BRK.B) portfolio lie stalwart holdings like The Coca-Cola Company, a testament to his 1988 investment that has withstood the test of time.

In a curious twist, the Oracle of Omaha now seems to be in a selling reverie. Recent reports suggest substantial reductions in his positions, notably trimming Apple’s stake by nearly half and shedding shares in the erstwhile second-largest holding, Bank of America.

The rationale behind Buffett’s selling spree remains shrouded. Speculations run amok, attributing his actions to a strategic portfolio realignment, concerns over stock valuations, or even a prelude to a major acquisition. While chatter murmurs of impending economic tremors, such conjecture veers off the familiar track of Berkshire’s sage.

Is it Time for Buffett to Exit? An Examination of Visa and Mastercard

Vaulted in Buffett’s good graces are stalwarts of the credit card industry. American Express, now the magnate’s prime holding, basks in his pledge of indefinite allegiance. Casting a wider gaze reveals positions in Capital One, Citigroup, Bank of America, and credit card giants Visa and Mastercard.

A window now opens to speculate if Visa and Mastercard might next grace Buffett’s exit queue. Here’s why:

Image source: Getty Images.

1. Diversification Dilemma

Existing holdings paint Berkshire as no stranger to the realm of credit card empires. American Express, Visa, and Mastercard collectively held notable positions, with Bank of America ranking as the third-largest asset. Should Buffett seek to mitigate exposure to consumer spending or infuse diversity into the portfolio, trimming Visa and Mastercard is a prudent step. Although sizable, the repercussions on share prices would likely be marginal.

Berkshire’s interests in these companies, however, still fall below the threshold necessitating Form-4 disclosures when divesting.

2. Legal Looming Shadows

Visa and Mastercard now confront murky legal waters post-judicial dismissal of a settlement with retailers linked to an antitrust lawsuit over exorbitant fees. Allegations point to collusion between these giants and banks, inflating interchange fees and stifling cheaper card alternatives for consumers.

Escalating uncertainties stem from the disputed equity of the settlement, raising qualms of favoritism towards major retail players. Moreover, larger merchants contend the settlement fails to address anti-competitive norms, notably the enforced acceptance of all cards from a single acquirer.

3. Pondering Consumer Trends and Pricey Valuations

In a realm deeply tethered to consumer whims, Visa and Mastercard stand as sentinels of global spending. The unmistakable drift towards cashless transactions renders them vulnerable to any consumer downturn. Presaging a slowdown might not trigger immediate action from Buffett given his steadfast gaze; however, when coupled with lofty valuations, it might stir inclinations to book gains.

With Visa commanding a forward P/E ratio exceeding 26 and Mastercard at 32, backed by recent revenue spurts of 10% to 11%, the duo grapple with towering valuations juxtaposed against potential market softening and impacts of the legal saga.

V PE Ratio (Forward) data by YCharts.

Amidst a whirlwind of factors, Buffett might contemplate parting ways with these juggernauts in the offing future.

Ensuing Opportunities: A Road Less Traveled

Ever gnawed by pangs of missing out on the investment craft? On rare occasions, a band of financial visionaries herald potentially bountiful prospects. Stay attuned to the faint whispers of the investing realm for an insight that may steer your fortune.