Billionaire Bill Ackman Has 11% of His Hedge Fund in Visa and Mastercard. 3 Reasons Why the Famed Investor Is Bullish on These S&P 500 Stocks

During the second quarter, Pershing Square Capital Management, the hedge fund firm founded by Bill Ackman, initiated positions in Visa (V +0.36%) and Mastercard (MA +0.78%). While their share prices have appreciated in recent months, these businesses traded at attractive valuations at purchase.

Here are three reasons the billionaire investor is bullish on these two S&P 500 stocks.

Ackman's firm believes these are two of the highest-quality businesses on Earth. There are three notable factors supporting this view.

Visa and Mastercard, which connect consumers, merchants, and banks around the world, have developed robust network effects. This makes their platforms almost impossible to disrupt.

Another positive trait is that they still have sizable growth runways ahead. Pershing Square notes that card payment volumes only account for "half of addressable consumer spending globally."

Finally, these companies possess incredible financial profiles. Visa's quarterly operating margin has averaged 67% in the past five years, which is better than Mastercard's still impressive 58%.

Combined, Visa and Mastercard represent 11.4% of the hedge fund's portfolio. This gives Pershing Square meaningful exposure to the card payments industry.

The firm believes these businesses will post high-teens annualized earnings per share growth in the next three to five years. This bottom-line catalyst can be exactly what drives their stock prices higher in the future.