3. American Express Company (NYSE:AXP)
Warren Buffett’s First Major Purchase: 2010
Berkshire Hathaway’s Latest Investment Stake: $35.11 Billion
Number of Hedge Funds Holding Stakes as of Q2: 68
American Express Company (NYSE:AXP) is one of Buffett’s top stock picks in the financial services sector, operating as an integrated payments company. Its products and services include credit cards, charge cards, banking, and other payment and financing products.
The company is increasingly outperforming other credit card companies, offering significant upside potential for long-term investors. The company’s strong financial performance, robust sales expansion, and youthful clientele are key factors that affirm its long-term prospects.
The youthful clientele base positions American Express Company (NYSE:AXP) as a top choice for credit card investments. The financial technology company reported gaining an additional 3.4 million credit card accounts in the first three months of 2024. Furthermore, American Express noted that millennial and Gen Z individuals “were responsible for over 60% of new credit card account openings worldwide.
Revenue in the second quarter increased by 8% compared to the previous year, and when adjusted for changes in currency values, it jumped to 9%. What’s even more remarkable is the substantial increase in earnings per share (EPS). The payments company’s EPS jumped by 44% year over year. The company’s distinctive business approach is remarkably effective at generating profits in various markets.
American Express Company (NYSE:AXP) meets the standards as one of the best long-term stocks to buy, according to Warren Buffett, owing to its consistent earnings power and fundamental strength through both a growing bottom line and dividend.
While trading at a price-to-earnings multiple of 17, the stock offers a 1.10% dividend yield for generating some passive income. Its dividend per share payout is up by 165% over the past ten years, affirming American Express’s ability to generate free cash flow for distribution regardless of the prevailing business environment.
As of June 2024 end, 68 out of the 912 hedge funds covered by Insider Monkey’s research had invested in American Express Company (NYSE:AXP). Warren Buffett’s Berkshire Hathaway was the biggest shareholder through its $35.11 billion stake.
In its Q1 2024 investor letter, Artisan Select Equity Fund commented on American Express Company (NYSE:AXP) as follows:
“American Express Company (NYSE:AXP) shares rose 22% this quarter. This is an interesting case study given our earlier discussion about inflation. American Express operates one of the largest credit card networks in the world. Its revenue is largely a function of a fee rate applied to the dollar value of goods and services that are transacted through its network. That dollar value is, of course, nominal. As inflation pushes up the value of those goods and services as it has for the past few years, American Express will capture that value through its fee structure. The past few years inflation has clearly been a benefit. Aside from its inherent inflation protection, the business is a very strong one. Payments continue to shift toward electronic forms, benefiting American Express. It also has a strong brand that attracts loyal and highly profitable customers that are the envy of the industry. Recent results have been strong with revenues moving nicely ahead of GDP.”
