We recently compiled a list of the 10 best performing Warren Buffett stocks in 2024. In this article, we are going to take a look at where American Express Company (NYSE:AXP) stands against the other Top-Performing Warren Buffett Stock of 2024.

Warren Buffett has etched his name as the most successful investor on Wall Street by steering a small company into a trillion-dollar empire. The milestone stems from the billionaire investor’s value investing strategy that has always focused on undervalued stocks with tremendous upside potential.

In a year where the overall market has been on an upward trajectory thanks to solid financial results amid a resilient economy and expectations of interest rate cuts, Buffett has outperformed the overall market. His investment firm gaining more than 28% compared to a 17% gain for the S&P 500 over the same period underscores Buffett’s competitive edge in picking and investing in market-beating stocks.

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Buffett, who rose to prominence in the 1960s, has transformed his investment firm into a conglomerate with stakes in companies in the insurance, railroad, retail, manufacturing, and energy sectors. According to Andrew Kligerman, TD Cowen’s Berkshire analyst, Buffett’s performance in 2024 is a testament to his stock-picking skills focused on businesses trading at relatively lower valuations.

Nevertheless, the billionaire investor has been in defensive mode despite the stellar performance for the better part of 2024. Concerned by valuations getting out of hand amid the high interest rate environment and deteriorating economic conditions, Buffett has dumped massive amounts of stocks in companies whose valuations got out of hand.

With the massive sale of stakes, the billionaire has successfully generated significant value as most of the stocks had gained significantly amid the bull run in the market. The stock sale has also allowed the billionaire investor to raise the cash pile in his investment firm to a record $277 billion.

Although Buffett has previously argued against diversification, it’s understandable why his firm decided to reduce stakes in some of the companies. The investments had been a huge success for his firm, locking profits with the overall market at all-time highs.

The fact that Buffett invests through a conglomerate structure, often considered archaic, underscores his edge in the highly competitive investment world. At 94, the ‘Oracle of Omaha’ has started showing signs of slowing down. The appointment of Greg Abel as his successor signals he may not have a significant say in investment decisions in the near future.

What might come as a surprise is that the best-performing Warren Buffett stocks in 2024 are not among the big names that account for the biggest share of Buffett’s portfolio. Instead, they are companies that have remained resilient amid the high interest rate environment that has rattled the stock market.

Additionally, they boast of stocks well positioned to benefit as the macroeconomic environment improves, with the US Federal Reserve cutting interest rates by 50 basis points. The US economy is avoiding recession as the Fed continues to tweak its monetary policy, which should allow the companies to generate more shareholder value and, therefore, continue powering high.

Buffett’s investment portfolio also includes companies with tremendous potential and ability to generate free cash flow owing to resilient core businesses. Consequently, the companies have emerged as a source of passive income, allowing Buffett to generate billions of dollars in dividends. Last year alone, the Oracle of Omaha raked $4.36 billion in dividends from his investments.

Our Methodology

We analyzed Berkshire Hathaway’s Q2 2024 portfolio and picked the best-performing stocks on a year-to-date basis, as of September 20. The list is sorted in ascending order of the year-to-date performance of the stocks.

At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

American Express Company (NYSE:AXP)

Warren Buffett’s Q2 2024 Stake: $35.11 Billion

Year to Date Gain as of September 20: 42.72%

Number of Hedge Fund Investors In Q2 2024: 68

American Express Company (NYSE:AXP) is one of the best-performing Warren Buffett stocks in 2024 as it continues offering crucial financial services. Its integrated payment business, which includes credit cards, charge cards, and other financing products, has benefited from the robust US economy that has remained resilient amid the high interest rates.

American Express Company (NYSE:AXP) stands out as one of the top holdings in Buffett’s portfolio owing to its history of returning value through dividends. The robust core business has allowed the company to demonstrate consistent earnings power and fundamental strength, therefore growing its bottom line and dividends.

Its second-quarter revenue rose 8% yearly to record highs of $16.33 billion as profits landed at $3.02 billion or $4.15 a share. The impressive results stem from the company’s unique core business that generates earnings regardless of the economic conditions.

When there’s a slowdown in credit card spending due to tougher economic times, American Express Company (NYSE:AXP)’s rewards costs decrease, enhancing its bottom line. Moreover, when consumers have less money to spend, the amount of credit they owe rises, leading to an increase in interest earnings. Furthermore, its customers who spend a lot are more durable than the typical customer of its rivals, earning American Express a reputation for having the lowest rates of late payments in the sector.

Management increased its dividend payout to $0.70 a share, up by 8%, translating to a dividend yield of 1.04%. At a price-to-earnings ratio of 19.24, American Express Company (NYSE:AXP)’s valuation remains attractive relative to its near-term earnings growth.

By the end of June 2024, 68 out of the 912 hedge funds tracked by Insider Monkey had invested in American Express Company (NYSE:AXP). The largest shareholder was Warren Buffett’s Berkshire Hathaway, with a stake valued at $35.11 billion.

In its Q1 2024 investor letter, Artisan Select Equity Fund had this to say about American Express Company (NYSE:AXP):

“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.”

Overall AXP ranks 6th on our list of 10 best performing Warren Buffett stocks in 2024. While we acknowledge the potential of AXP as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AXP, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.