Warren Buffett-led Berkshire Hathaway fully owns businesses in a wide variety of industries. But the sprawling conglomerate also has a gargantuan $394 billion public equities portfolio as well, headed by the Oracle of Omaha. Investors would be wise to peek at Berkshire's holdings to find potential portfolio ideas.
There are dozens to consider. However, here's one no-brainer Warren Buffett stock to buy right now.
A credit card leader
The company I'm talking about is American Express (AXP 1.26%). It's currently the third-largest holding for Berkshire, with the conglomerate owning a sizable 21.1% stake in the financial services entity.
American Express (also known as Amex) is undoubtedly a leader in the industry. It offers various credit cards known for their high fees and attractive perks. For example, the Platinum card costs $695 per year but comes with numerous travel and lifestyle benefits. The brand is key to the company's success, as it can help bring in affluent consumers who spend more.
Like JPMorgan Chase or Capital One, Amex is a card issuer that extends credit to consumers for purchases. But unlike these banks, and similar to Visa and Mastercard, Amex also operates the underlying payments network that helps to facilitate transactions. This gives the business a unique competitive position.
Consequently, Amex also possesses network effects. The more cardholders who become customers, the more valuable Amex is to the merchants who accept it as a method of payment. And with more acceptance locations, the value proposition of being a cardholder increases.
NYSE: AXP
Key Data Points
Financial performance
Helped by this economic moat -- a top characteristic Buffett likes to see in his businesses -- Amex has been reporting strong financial performance. This is another reason the stock looks like a no-brainer buy.
The company posted revenue (net of interest expense) of $60.5 billion in 2023, which was up 14% year over year. What's very encouraging is that Amex makes money in various ways. It not only earns meaningful interest income on its cardholders' balances but also charges fees to consumers and merchants.
This is a consistently profitable enterprise, which greatly reduces financial risk. Net income jumped 11% in 2023 before rising 34% in the first quarter of 2024.
Of course, any business that lends money is exposed to the economic cycle. While Amex has proven to be resilient, a recession could lead to higher losses. For what it's worth, management expects revenue and earnings per share to rise 10% and 15% (both at the midpoint), respectively, this year, both of which would be stellar outcomes.
Looking at valuation
Berkshire Hathaway has owned shares in American Express since the early 1990s. In the Oracle of Omaha's mind, this appears to be a so-called forever stock, one that he supposedly doesn't have any intention of selling anytime soon.
Prospective investors should consider the valuation. The stock trades at a price-to-earnings (P/E) ratio of 19.3, slightly higher than the trailing-five-year average of 18.6. This seems like a reasonable entry point, in my opinion.
It's important to understand that because Amex is both a card issuer and payment processor, its P/E multiple should be between that of JPMorgan Chase and Visa. And this is exactly what holds true today.
Investors benefit from a long-running dividend that currently yields 1.2%. That might not be anything to write home about, but it has risen over the years. Moreover, executives engage in stock buybacks. In the past five years, the outstanding share count has been reduced by more than 14%, boosting earnings per share.
Once you understand the positive attributes of this business, it's easy to see why the stock is a no-brainer buy.
