The Motley Fool Take
Mastercard has taken a hit from the ongoing COVID-19 pandemic, as more people staying home means less spending overall, especially in categories such as travel. The payment processing giant’s profit dropped 9% year over year in the first quarter of 2020, while revenue growth slowed to 3%. But the headwinds from the coronavirus outbreak will only be temporary.
The pandemic could even boost Mastercard’s prospects over the long run by further accelerating the expansion of e-commerce. Consumers have shopped online more while they’ve been stuck at home — and they aren’t using cash or checks to make those purchases. They’ve either used credit cards or digital payment methods, many of which rely on Mastercard’s huge payment processing network.
It’s not just individual consumers who are shifting away from using cash and checks, either. Mastercard recently launched a business-to-business platform called Track that enables businesses and their suppliers to use multiple electronic payment methods in their commercial activities.
The future seems likely to feature significantly lower use of cash and much higher use of digital payments — and Mastercard is poised to profit from that transition. In the near term, though, it has more than $10 billion in cash (as of the end of its last quarter), enough to withstand a lot of coronavirus-related disruption to its business. (The Motley Fool owns shares of and has recommended Mastercard.)
Ask the Fool
From G.L., online: Is this a good or bad time to buy stock in cruise companies?
The Fool responds: It might seem like a great time to buy, as some cruise operators saw their shares sink by more than 70% from January to March, and those stocks are still struggling to recover. Market crashes do produce a lot of stock bargains, after all. But not every fallen stock is a bargain. Many are tied to companies facing difficult challenges, and you need to figure out whether the challenges are likely to be fleeting or lasting.
With a global pandemic raging, the idea of taking an ocean cruise in close quarters with thousands of people has less appeal than it used to. Once a vaccine has been found and the threat from the virus can be managed well, the travel industry overall should see business improve. But whether demand for cruises will return to previous levels is unknown. A longer pandemic may even lead to some cruise operators declaring bankruptcy and wiping out shareholders.
There’s simply plenty of uncertainty and risk right now — for the cruise industry and others. You may want to wait for that to abate or look for bargains elsewhere.
From M.K. in Elyria, Ohio: How do we know when we’re in a recession?
The Fool responds: There are different definitions of the term. One, for example, requires two consecutive quarters of declining gross domestic product, adjusted for inflation, before a recession can be declared. Another looks for several months of widespread declining economic activity. An extreme, or protracted, recession is often referred to as a depression.
The Fool’s School
Long-term care insurance, which helps pay for nursing home, assisted living or in-home care you may need in the future, is very expensive — because there’s a good chance that you’ll need and use it. The cost of home health aides averages around $52,624 per year, according to 2019 data from Genworth, while a year in a shared nursing home room averages $90,155. A 2019 government report found that 70% of those who reach age 65 will need significant long-term services and supports.
Without long-term care insurance, if you end up with Alzheimer’s disease or simply need help with daily activities such as eating, bathing and dressing, you might have to rely heavily on family members to care for you. Or you might deplete your savings paying for care.
So how expensive is long-term care insurance? Costs vary, but it’s not uncommon to be charged somewhere between $2,000 and $4,000 annually if you buy the policy between ages 50 and 65, and you may have to pay $6,000 or more if you buy at age 70 or later.
Common guidance suggests that you skip long-term care insurance if you’re rich or poor, because wealthy folks can just pay for care out of pocket while lower-income people can’t afford it at all. But those in the middle class should look into whether they want to buy it — and when. (You’ll pay less if you buy while young, but you’ll make more annual payments, too. If you delay until you have one or more health conditions, though, you’ll end up paying more.)
Note that there are other ways to pay for needed care, such as by saving extra money in your retirement accounts and making use of a health savings account.
Read up on long-term care insurance before buying it, as there’s a lot to know and plenty of choices to make. There are some cost-cutting strategies to consider, too, such as getting coverage that lasts only three to five years, which is sufficient for most (but not all) folks.
My Dumbest Investment
From J.L., online: My dumbest investment was loading up on shares of Disney before it bought Star Wars — and then selling the shares after a while because they weren’t performing well, and I got bored.
Of course, Disney has skyrocketed since then. I learned to step back and look at the big picture — and to hold on to things a bit longer!
The Fool responds: Walt Disney bought Lucasfilm — and the Star Wars franchise — for around $4 billion in 2012, in a transaction that some have referred to as “the deal of the century.” Within three years, Disney’s stock had more than doubled. Within six years of the purchase, Disney had produced four Star Wars feature films, and they had grossed close to $5 billion, more than covering the cost of the acquisition.
Getting bored with an investment isn’t a bad thing if you’re invested in a healthy company with a lot of growth potential. Patience is a key asset if you want to build wealth through investments in the stock market. The stock of great companies will generally go up over the long run, but there can be bumps and occasional stagnation along the way.
Before selling, you might have asked yourself how Disney could make money off the Star Wars franchise — via films, merchandise, theme park attractions and so on. If Disney’s overall future seemed bright, you should have hung on.
Who am I?
I trace my roots back to 1862, when Abraham Lincoln signed the Pacific Railway Act and chartered me to build a railroad heading west from Omaha, Neb., while another company built one heading east from Sacramento, Calif. I laid my first rail in 1865, and in 1869 the two rail lines met and joined in Utah. In 1996, I merged with Southern Pacific, forming America’s largest rail company (at the time). Today, with 7,700 locomotives and more than 32,000 route miles, I’m a major American transportation company. I generated more than $20 billion in freight revenue in 2019. Who am I?
Last week’s trivia answer: Ford Motor Co.
— to www.dallasnews.com