American Express (AXP 0.08%) is one of those well-established companies that can be easy to overlook, if only because it's been around for so long (the company turns 175 next month). While flashier financial stocks may be tempting to buy, there are plenty of reasons why this long-standing company has been a favorite of Warren Buffett's Berkshire Hathaway portfolio.
The company accounts for roughly 15% of Berkshire's holdings, making it the second-largest holding behind Apple. Here are a few reasons to follow Buffett's lead and buy American Express while it's trading below $320.
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Its earnings and revenue are growing at a healthy clip
American Express reported 2024 results at the end of January, with total sales rising 9% to $65.9 billion and diluted earnings per share surging 25% to $14.01. Those strong results were fueled by increased spending by customers and strong customer acquisition (more on that later).
The strong top- and bottom-line results prompted management to issue impressive 2025 guidance, with revenue growth of 9% and an estimated earnings-per-share increase of 14% to $15.25, both at the midpoint.
It's worth mentioning that American Express CFO Christophe Le Caillec said recently that first-quarter growth will be slower than in the previous quarter. Le Caillec said at a financial conference that fewer days in the quarter and a stronger dollar would cause lower revenue, but he also reiterated that the American Express' full-year guidance is still intact.
American Express continues to attract new customers
One standout from the company's full-year results was that it added a record number of new card acquisitions -- some 13 million. Even more impressive is that 70% of those new cards are "fee-paying products," meaning customers pay an annual fee to use them.
NYSE: AXP
Key Data Points
Adding to the good news for American Express is that younger, more affluent customers are ramping up spending. Gen Z and millennial spending rose 16% in the fourth quarter.
"Across the industry, the number of millennials and Gen Z consumers with premium products are growing at an even faster rate, and we're adding highly creditworthy customers in these cohorts faster than the industry, with substantial room to continue this growth," Le Caillec said on the latest earnings call.
Attracting younger customers is important to the company's long-term strategy because it helps lock in customers for years. Management noted on the call that as Gen Z customers get older, they'll be more likely to tap American Express for things like small business loans and other forms of credit.
Management also added that the company expanded its coverage in international markets, reaching 80% coverage of 12 countries, up 8 percentage points from three years ago. The growth came from adding millions of new international merchants in 2024.
Its stock looks cheap right now
American Express' stock has made impressive gains of 48% over the past year, compared to the S&P 500's 23% rise. But even with those gains, its shares look relatively cheap. The stock has a forward price-to-earnings ratio of just 20, compared to the S&P 500's multiple around 24.
With American Express rapidly increasing new card members, expanding sales and earnings, and management anticipating another strong year, now could be a good time to start a position or add to an existing one. And with its shares being relatively inexpensive right now, there's little reason to wait on the sidelines.
