1 Super Obvious Buffett Stock to Buy Now

Back in 1850 when American Express was originally founded, it was a mere express mail service. Today, it’s one of the most prominent financial services companies globally and has won Warren Buffett’s favor as a long-term investor.

That’s in large part due to its stunning business model that features four major categories: U.S. Consumer Services, International Consumer and Network Services, Global Commercial Services, and Global Merchant and Network Services.

Where American Express shines is its brand advantage, loyal customer base, and a unique business model that differentiates it from competitors like Visa and MasterCard.

Key Points

• Buffett’s Berkshire Hathaway has a huge stake in American Express still, signaling high confidence in future prospects of the firm.
• AmEx is trading at a reasonable P/E ratio in line with its 5-year average in spite of the market at all-time highs, suggesting its potentially an attractive buy now.
• American Express has a Net Promoter Score of 50, significantly higher than the industry average, suggesting high customer satisfaction that translates into strong retention rates and the ability to charge premium fees for its services.

What Makes American Express Special?

A primary reason Buffett has favored American Express is its closed-loop network that allows it to capture and analyze transaction data which in turn provides valuable insights into consumer behavior. Ultimately, this data advantage creates a wide moat.

AmEx uses that data to offer target rewards and services, foster customer loyalty and enable premium pricing. The company’s relationship with highly affluent customers is also a competitive advantage.

So too are the network effects a competitive advantage, and lead to the value of the network growing as more cardholders and merchants participate, thereby enhancing its overall market position.

Still a Financial Monster

In 2023, the company reported total revenue of $60.5 billion, reflecting a 14% year-over-year increase. The bottom line was reported at $8.1 billion, up 34% from the previous year. Net income jumped 11% last year and rose 34% in the first quarter of this year.

The company’s return on equity was an impressive 29%, significantly higher than the industry average. On a valuation basis, American Express’s stock is currently trading at a price-to-earnings ratio of 19.3, which is slightly higher than the trailing five-year average of 18.6.

This multiple implies that Amex may still be a pretty good buying opportunity for investors, especially when combined with the dividend yield of 1.2%.

Clearly, Buffett still has a lot of confidence in the firm given that Berkshire Hathaway holds a 21.1% stake. One reason for that unwavering support is the growth potential in small-to-medium sized enterprises. SMEs account for 20% of AmEx’s total billings, but the segment is growing at a double-digit rate annually.

The bottom line is American Express has a wide economic moat, strong financials, and lots of potential growth opportunities ahead, particularly among SMEs. And the cherry on top is with a 54 year history of consecutively paying dividends and a rock solid business model, this is a stock to hold for the long-term.