American Express stands out as an exceptional enterprise with a promising trajectory.
Renowned Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) CEO, Warren Buffett, holds the distinction of being one of history’s most esteemed investors. With a record of outperforming the market for several years, he’s garnered a vast base of admirers and followers. Central to Buffett’s investment approach is his penchant for high-quality enterprises possessing robust competitive edges and yielding consistent long-term returns. He tends to purchase these stocks at fair valuations and retains them, often indefinitely.
American Express (NYSE: AXP) ranks prominently in Buffett’s assets. Buffett first introduced this credit card titan to his portfolio in 1964, post the “salad oil scandal” which adversely affected the company’s stock value. Observing that the core strength of American Express remained unaffected, Buffett discerned an opportunity in the market’s exaggerated reaction.
Though he didn’t cling to his initial American Express shares, by the early ’90s, it had become a primary investment for Berkshire Hathaway. Presently, a 20% stake in American Express is under Berkshire Hathaway’s ownership, making it its third most significant stock holding at present
What’s Buffett’s Affinity for American Express?
A multitude of reasons underscore why American Express is a standout long-term investment choice.
1. Strong Brand Identity: American Express is emblematic of prestige, trust, and top-tier quality. Operating since 1850, it has withstood various economic tribulations. Its clientele remains unwavering, particularly appreciating the high-end card benefits and privileges.
2. Distinctive Business Framework: Unlike its counterparts, Visa and Mastercard, functioning primarily as payment interfaces, American Express thrives both as an interface and an issuer. This dual role allows it to garner fees from trade proceedings and simultaneously extend credit to card users, thereby earning through interest. This Model according to American Express’s better risk and pricing management, plus amplified avenues to upsell.
3. Revenue Diversification: American Express’s earnings stem from multiple channels, including U.S. consumer services, commercial services, international card services, and a global merchant and network platform. Serving diverse customer profiles and offering an array of services, this multifaceted approach shields American Express against performance dips in any single segment.
4. Consistent Growth Pattern: Over the last decade, American Express has shown a steady uptrend in its revenue and profitability metrics, even amidst potential setbacks like regulatory shifts, intensified rivalry, and the pandemic’s upheaval.
American Express: An Evergreen Investment Option
Though Berkshire Hathaway’s American Express stock acquisition was essentially wrapped up in 1995, as expressed in its annual report, this passive approach towards the credit card leader shouldn’t sway potential investors.
Beyond the attributes highlighted, American Express champions shareholder interests with its proactive stock repurchase strategy and a sustainable dividend yield of 1.5%. Its strategic position in the global economy underpins its long-term viability. If a genuine long-term investment is on your agenda, American Express should undoubtedly be a contender.
In a world of fluctuating markets and fleeting investment opportunities, some stocks stand the test of time, offering stability and consistent returns. American Express, with its deep-rooted history, diversified business model, and strategic positioning in the global economy, emerges as one such jewel. Endorsed by one of the world’s most renowned investors, Warren Buffett, it embodies the essence of a long-term, reliable investment. As the economic landscape continues to evolve, investors seeking a steadfast harbour for their resources would be wise to give American Express a closer look.
