American Express Company (AXP), Toll Brothers Inc (TOL): Consumer Borrowing Is up, Stick to These High-End Players

American Express Company (NYSE:AXP) is also trading near its highs, but has a PE of around 19 and a historically more resilient business model. Growth investors looking for a way to tap into the growing appetite for credit cards should look at American Express Company (NYSE:AXP) over Mastercard Inc (NYSE:MA) or similarly situated Visa Inc (NYSE:V).

Recovering Home Market

Big ticket items like cars and homes are also in increasing demand. However, the spending here is far more reliant on interest rates than consumer spending on credit cards. From that perspective, investors should be focusing on home builders that cater to the buyers most capable of paying more to buy a home. That means the high end.

Toll Brothers Inc (NYSE:TOL) focuses on exactly that segment, selling single family and attached homes in luxury development complexes. The company’s sales fell 75% between 2006 and 2011. That was a brutal period for all home builders. Like its brethren, Toll Brothers Inc (NYSE:TOL) used the downturn to streamline its business. Those efforts bore fruit relatively quickly, since it was able to earn nearly $0.25 a share in 2011 despite the 75% revenue drop.

The company has seen demand increase of late. In the second quarter, deliveries advanced 38% year over year, new sales were up 57% in dollar terms, and the average selling price was $678,000 in the second quarter, up from $585,000 a year earlier. Backlog, meanwhile, was up 69% in dollar terms. In fact, the company has seen year over year sales growth in each of the last five quarters.

On better financial footing today than before the recession and catering to buyers who remain in good financial health, Toll Brothers Inc (NYSE:TOL) is probably one of the better home builders right now. Even if less affluent customers are forced to pull back, Toll Brothers Inc (NYSE:TOL) should continue to see relatively strong results.

Pulling it Forward

While pent up demand has probably helped push consumers to spend more, low interest rates have clearly helped, too. With rates heading higher, Toll Brothers Inc (NYSE:TOL) and American Express are better positioned than most of their competitors to handle a spending downturn since their customers make more, spend more, and weathered the 2007 to 2009 recession better.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends American Express and MasterCard. The Motley Fool owns shares of MasterCard. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Consumer Borrowing Is up, Stick to These High-End Players originally appeared on Fool.com is written by Reuben Brewer.

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