August 04, 1994
American Express Co.
TYPE: Beating the Dow
Phone: (212) 640-2000
Closing Prices, August 4th, 1994: Bid $27 3/4 Ask: $27 7/8
Trailing 12-month revenues: $16.4 billion
Trailing 12-month EPS: $2.78
Last quarter reported: June 1994 (FY: Dec)
Next quarter reported date: October 25, 1994
Consensus EPS estimates for quarter: $0.69e vs. $0.78
FOOL ratio: N/A
Trade: Buying 180 shares, August 5th
American Express Co., based in New York, NY, is a diversified travel and financial services conglomerate, known primarily for its charge cards and travelers "cheques" (an Anglophilic bit of orthography meant to add a certain amount of snob appeal to those wretched little things). This heavyweight, with $16 billion in revenues, is to our knowledge the oldest company whose stock appears in The Fool Portfolio, in business since 1850. At least once in our lives, most of us have not left home without its product stuffed in a plastic envelope, comforting us with the thought that no matter how disorganized we are, we won't ultimately really LOSE the money.
RECENT NEWS. For all its tradition, American Express has had a bumpy ride during the 1990's. Sure, $16 billion in trailing 12-month revenues is astounding. What a giant! But it doesn't look so sweet when you consider that they closed out fiscal 1992 with $26 billion in revenues. Essentially, this company is 60% the company it was a few short years ago, having shed several of its businesses, most notably Shearson-Lehman. And last year in the midst of more restructuring, AXP restructured its leadership (with a little help from shareholder activism), ousting CEO Jim Robinson after two decades of mostly successful leadership. . . until the last 5 years or so. Our man Harvey Golub, the nuts 'n' bolts guy promoted to replace him, has brought the performance of the company and its common stock back to respectability. Was it before or after the Editors shook Golub's hand last year that American Express had a bang-up 1993? We won't say, but we will admit to having attended the annual meeting in order to do a satirical writeup of the zoo that annual meetings of megacorporations can be.
Anyway, this year hasn't been so hot. AXP's June 30th second quarter wasn't horrible, coming in at 70 cents per share (just about at consensus estimates). But that was below last year's level, and the first half of 1994 shows drab earnings of $1.32 versus $1.58 per share for the same period last year.
That's pretty much the way 1994 will continue to look, kinda drab. Earnings per share for the year are estimated at $2.66, 10% below last year. Investor's Business Daily credits AXP stock with a relative strength of 48, which sounds about right, and the stock sits currently midway between its 52-week high and low. Everything relating to the stock and the business points to. . . humdrum.
SO WHY INVEST IN THEM? Is it merely because they've traded in those Karl Malden scare-the-traveler ads for a more easygoing (and self-deprecating) Jerry Seinfeld? No. That reason, though good, is nevertheless not sufficient cause to lay down $5000 of our money (and maybe yours) on this one.
One reason to buy AXP is that projections are on the table for improved growth over the next 18 months. Analysts expect American Express to squeeze out from $3.20-$3.25 in earnings per share for 1995. Those estimates, 20% higher than 1994 projections, interest us enough that we're willing to look past the mediocre upcoming two quarters and concentrate more on the company's long-term prospects.
ALL RIGHT, NOW WE'LL SAY THE REAL REASON. Whatever we printed above, the primary reason we're buying American Express is its current status as one of the 5 "Beating the Dow" stocks. Each of these elite 5 are Dow Jones Industrial Average components with high dividend yields and low share prices, making them safe plays likely to add stability to our portfolio, especially should the Market remain bad. ("Beating the Dow" is explained in one chapter of our Motley Fool Investment Primer--if you're interested in picking up a copy, stop by The Fool Store.) Beating the Dow stocks have been quiet but outstanding performers for 20 years now, and offer both a handsome dividend payment as well as a high likelihood of capital gains. American Express is one of three Beating the Dow stocks we're adding to our portfolio tomorrow.
Because The Fool Portfolio has always been and will always be a higher-risk portfolio, we do like to mix in some heavies with our high-momentum small-stock darlings.
American Express is going to help keep our little guys in line.