Berkshire Hathaway, the massive conglomerate that Warren Buffett has long been in charge of, also owns a huge public equities portfolio. It has dozens of different stocks that might draw the attention of the average investor.
There's one top financial stock, currently accounting for 10% of the total portfolio, that has soared 24% in 2024 (as of April 22). It just came out with fresh quarterly figures that point to a business experiencing strong momentum.
Is it time you bought this unstoppable Buffett stock?
Unfazed by the economic environment
Banking institutions are cyclical companies, as their results ebb and flow with changes in interest rates, as well as how the economy is doing. You'd think that in a higher rate environment, this business, whose primary moneymaker is credit card activity, would struggle. But that just hasn't been the case.
The Buffett holding that is thriving right now is none other than American Express (AXP 1.32%). The company reported an 11% year-over-year revenue increase for the first three months of 2024. The total of $15.8 billion came in slightly ahead of analysts' expectations.
Amex collects fees anytime one of its cards gets swiped. So, it's not a surprise to know that it benefits when it's able to bring on new customers who spend more over time. In Q1, the business signed up 3.4 million new card members, with the millennial and Gen-Z demographics showing robust growth. Additionally, Amex handled $419 billion of payment volume during the three-month period, a 7% increase compared to the year-ago period.
Going back to my earlier point: You'd assume higher interest rates would discourage consumers from not only signing up for new credit cards but also spending more as well. Amex's success points to the fact that it attracts a more affluent customer base, thanks mainly to the brand's premium status in the industry. That's a key competitive edge.
It was an even better story on the bottom line. American Express posted net income of $2.4 billion, an impressive 34% jump from the prior-year period. The fact that total expenses rose by only 3% certainly helped profitability. And given management's propensity to repurchase shares, the company's diluted earnings per share soared 39%.
Follow Buffett's lead
American Express' latest financials reveal a business that's on strong footing. However, investors need to focus on some more important factors that impact the company's long-term success.
I discussed the brand earlier. This competitive advantage can't be overstated. It helps Amex stand out in the cutthroat financial services industry more broadly, and in the credit card niche more specifically. This is undoubtedly one of the most powerful brands in the world, and it's an attribute that should keep the company relevant for decades to come. It has done exactly that in the past.
That brand recognition has allowed American Express to flex its pricing power. Its popular premium credit cards, like the Gold and Platinum, carry hefty annual fees that provide consumers with a range of perks and benefits. The business has been able to successfully raise these dues every so often, creating a valuable growth driver.
In the past five years, shares have climbed over 110%, easily beating the S&P 500's gains. The stock still looks reasonably valued, though. It trades at a forward price-to-earnings ratio (P/E) of 18.5. That's a discount to the broader market index.
I don't think it's ever a good idea to blindly mirror the investing decisions of an investor you admire, even if it is Warren Buffett. But given American Express' many business strengths, investors should seriously consider buying the stock right now and holding for the long term.
