American Express (AXP -2.74%) is one of the longest-held, and largest, stocks in Warren Buffett's portfolio at Berkshire Hathaway. Berkshire has owned a stake in the credit card company since 1993. At 29 years, this makes it Berkshire's second longest-held stock, after Coca-Cola.

It is also Berkshire's fifth largest holding, as he owns more than 151 million shares of American Express, at a value of $24.6 billion. That is a far larger stake than he has in two of its larger competitors -- Visa and Mastercard

What is it that Buffett likes so much about American Express? And should this stock be in your portfolio? Let's take a look.

American Express has multiple revenue streams

The first thing to know about American Express is that it's a closed loop credit provider, meaning it both issues the credit and processes the transactions on its network. It does not utilize third-party banks to issue the cards and provide the credit. Ultimately, it is a bank and a payment processor, so it generates revenue from interest on its loans, fees from transactions, and annual card fees. This is different from Visa and Mastercard, which are not lenders and only generate revenue through transaction fees.

So, while American Express has multiple revenue streams, it also does have credit risk if the loans are not paid back. 

But, on the other hand, American Express has flourished in this difficult market because of several factors, including higher interest rates. American Express saw a 24% increase in revenue in the most recent quarter, year over year, driven by a 31% jump in net interest income. Earnings rose 9% year over year to $2.47 per share, brought down a bit by $778 million in provision for credit losses, up from a $191 million credit reserve a year ago.

But higher interest income was not the only reason for its growth. American Express saw spending on its network go up 21% over the same quarter a year ago, driven by a spike in travel-related spending. Spending on travel and entertainment was up 57% this past quarter compared to a year ago, with spending in international markets surpassing pre-pandemic levels for the first time.

As a result, its discount revenue, which comes from transaction fees charged to merchants every time the card is used, was up 23% year over year.

Customer growth

In addition to spending growth, American Express has also experienced sharp growth in its customer base, led by millennials and Gen Z. The younger demographic accounted for 60% of the 3.3 million new cards issued in the third quarter. The younger generations are attracted to the experiences, rewards, and services that come with owning an American Express card

An economy teetering on the brink of a recession may not seem like the ideal environment for customer spending and acquisition, but American Express has a unique value proposition that makes it a good buy. It caters to customers with higher income levels who are not as affected by a slowing economy. It also relies heavily on travel spending by businesses and individuals. That segment just went through its worst period in decades, but it's now coming out on the other side and getting back to pre-pandemic levels.

There is also much talk these days about high credit card fees. There is even legislation in Congress, the Credit Card Competition Act, that would seek to lower fees by requiring banks to process electronic credit transaction over at least two unaffiliated networks, including at least one outside the Visa-Mastercard duopoly.

American Express typically charges higher fees than other credit card companies, but because it is catering to higher-end customers, merchants don't mind paying the higher fees if it gets wealthy customers in the door. What effect this bill, if it passes, would have on American Express remains to be seen, but it's worth watching.

It is also worth noting that the stock is fairly cheap right now, compared to its competitors, with a 13.9 forward price-to-earnings (P/E) ratio.

If you add up all of these factors, American Express is built to weather this period of economic uncertainty due to its unique advantages, and it should flourish when the economy and markets start to improve. Overall, you can see why Buffett likes this stock and why it's a buy.