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Now that the end of the year is here, some investors may have already begun looking for new stocks to own in 2013. With that in mind, I'd like to point out one company I've been looking at for some time, and at the end of this article you'll know whether I believe it's time to buy American Express (NYSE: AXP ) . But let's first look at the stock's performance in 2012, a few threats the company must deal with in the future, and one new product that may help the company beat the competition.
Year to date, American Express' stock price has risen by 21.5%, while over that same time frame, the Dow Jones Industrial Average (DJINDICES: ^DJI ) is up only 6.99%. Even the S&P 500 (SNPINDEX: ^GSPC ) is up only 13.12% over the past year. But American Express has been beaten by its peers in the credit card industry. Visa (NYSE: V ) is up 46.03% year to date, while MasterCard (NYSE: MA ) is up 29.8%. While Visa and MasterCard outperformed American Express in 2012, a new product launch late in the year may help American Express surpass its competitors in the New Year.
American Express' new BlueBird allows customers to freely use a prepaid debt card without monthly or even yearly fees. BlueBird is a reloadable debt card that customers can use at any retailer accepting American Express. Although the company won't make any money on interest or expenses as it would with its more traditional credit and charge cards, it will still get a transaction fee from retailers. The few percent that card companies charge retailers every time a customer uses a credit card to purchase a product may not seem like a big deal, but it adds up when you're talking about billions of dollars in transactions a year.
The BlueBird program will allow customers who may not meet American Express' requirements to become credit card holders but still want the freedom a credit card offers. The card is currently being offered in Wal-Mart (NYSE: WMT ) stores nationwide. It's believed that the big-box retailer has a large customer base that doesn't participate in traditional banking. Offering a prepaid debt card to these customers where they shop and backing them with the American Express name could open up doors to millions of new customers, and therefore millions more transactions to process every year.
Although some see the new near field communication (NFC) technology in smartphones as a threat to the credit card companies, what they don't understand is that this may actually make the card companies more money in the long run. While the plastic card in your wallet may no longer exist, the transactions the card companies make their money from will. The NFC technology is just a way for you to pay for an item using an electronic device, most commonly a smartphone. But, as I mentioned, the card companies will still process your transaction and take a percentage of the total amount, making themselves some money.
One real threat to the credit card industry and American Express is eBay's (NASDAQ: EBAY ) PayPal program. PayPal has already begun rolling out a new point-of-sale system in Home Depot (NYSE: HD ) locations around the United States. The new PayPal NFC technology will allow customers to use a PayPal account linked to a bank account to make payments like a debit or credit card would, but through their PayPal accounts. The benefits to using this payment system seems small and insignificant for now, hence the reason adoption has been slow to this point.
I believe the BlueBird program, backed by the name and respect American Express controls, will be a success in 2013 and beyond. As the world moves from cash to digital payment systems, American Express will continue to be a leader in the credit card industry. I am so confident in the company's future that I'm making a thumbs-up CAPS Call on the company and will also be putting my money where my mouth is and purchasing shares in the future.
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