A Technical Look At Why Visa Is A 'Buy The Dip' Candidate

Visa Inc V stock has been the definition of a market leader ever since the mid-October low. The stock rallied from $195.19 on October 16 to Friday's close of $258.19.

Can the stock continue to lead the market higher? The fundamental story will have to continue to shine and the bulls will need to keep control of the technical situation.

Let's take a look at both the fundamental and technical snapshots for Visa.

What The Bulls See

• A dividend of 0.70 percent with a payout ratio of 19 percent, indicating that the company has plenty of ability to grow the dividend.
• 42.81 percent net profit margins that spin-off more than $4.7 billion in positive levered free cash flow annually.
• Zero debt and $3.95 billion in cash equivalents.
• Nice prospects for 2015: 10.8 percent estimated revenue growth and 15.9 percent estimated EPS growth.

What The Bears See

• Some very rich valuation metrics: A market capitalization of $162.2 billion that trumps the enterprise value of $158.3 billion, a price-to-book ratio of 5.8, a price-to-sales ratio of 12.72 and a PE ratio of just over 21 vs. the estimated 2015 growth noted above.

The Technical Take

Technicians immediately note that Visa stock is displaying tremendous technical leadership vs. the broader market currently. Technicians project a potential resistance area of $264.25-$267.75 based on multiple measuring techniques. Once resistance is tested, though, they are thinking a pullback to one of three possible support levels may occur. Those levels are 235.50, 228.53 and 214.66.

Overall…

Visa is the ultimate "buy the dip" candidate with the strong growth and stable balance sheet on the fundamental side being backed up by strong technicals. Until major technical damage is done, the challenge here is to identify attractive entry points and to avoid the urge to be a hero and call the elusive top for the stock.