Title: Is Investing in This Unyielding Warren Buffett Pick a Wise Move with $100 Today?
Berkshire Hathaway, the renowned conglomerate run by Warren Buffett, boasts a variety of stocks in its extensive portfolio. Among these, one standout financial stock, occupying a substantial 15% weighting, has skyrocketed 58% in 2024 as of Dec. 9. Should investors consider investing $100 in this company right now?
The remarkable performer in the financial services sector this year is credit card giant American Express (AXP -0.25%). Established as a long-term holding for Berkshire, this financial powerhouse has left competitors in its dust.
American Express's unique advantage lies in its versatile positioning within the industry. Known for offering upmarket credit cards with high annual fees but tempting rewards, it profits from interest on outstanding balances. Additionally, operating as a card issuer, Amex competes directly with banks such as JPMorgan and Capital One.
Going a step further, American Express also offers a transaction-processing platform, connecting customers and merchants. Revenue is earned from this activity as well, making the company a formidable competitor to Visa and Mastercard. From a high-level perspective, American Express reaps benefits per transaction, making profits through both interest and fees from consumers and merchants.
Here are three impressive qualities that set American Express apart:
- Brand Recognition: Positioned as an upmarket offering in the industry, Amex attracts high-spending, affluent customers. During the September 30, 2024, period, the company's average fees per card hit $105, marking a 13% year-over-year increase and a 78% surge compared to 2019's third quarter.
- Network Effects: This advantage applies to any two-sided payment platform, like Amex's. With more than 145 million active cards around the world, accepted at 89 million merchant locations, the network is immensely valuable for both users and merchants. This creates a strong, self-reinforcing cycle that's difficult to disrupt.
- Financial Stability: Amex has consistently posted solid financial results. Since 2013, net revenue has increased annually by 7.2%, while diluted earnings per share have grown at a compound annual rate of 9.6%.
Entering 2024, American Express's shares traded at a 16.7 P/E ratio. As of Dec. 9, the multiple climbed to 21.8, revealing the stock market's growing enthusiasm for the company.
At this elevated valuation, some investors might hesitate to purchase Amex stock, opting instead for a dollar-cost averaging strategy or a wait for a price pullback. However, given its top-notch business traits, those valuation concerns may be outweighed by the enduring benefits Amex offers.
With its impressive financial performance and potential for continued growth, American Express has become an attractive investment opportunity for many. In fact, considering its financial stability and consistent earnings growth, some financial analysts recommend that investors consider allocating a portion of their investing portfolio to American Express stocks. In light of the company's strong brand recognition, network effects, and financial health, it might be worth considering the long-term potential gains that investing in American Express could bring.
