Berkshire Hathaway, the massive enterprise with its hand in various industries, also owns a sizable public equities portfolio. Directed by legendary investor Warren Buffett, the conglomerate has done a remarkable job compounding capital.
Everyday investors can find potential ideas by looking at what the Oracle of Omaha owns. There's one business that Berkshire has a $37 billion stake in -- and it might just continue its winning ways.
Here are three reasons why you should buy this top financial stock right now.
1. Durable competitive strengths
Buffett very much appreciates companies that possess economic moats. American Express (AXP 1.47%) falls into this category, making it a high-quality business.
Amex has a powerful brand presence in the otherwise competitive financial services industry. Its flagship Platinum and Gold credit cards cater to a wealthier clientele. These customers are comfortable paying high annual fees to take advantage of top-notch rewards and perks. And given their spending power, they might be better able to handle economic swings should a recession happen.
Like other card issuers, American Express takes on credit risk when approving borrowers. However, it also operates the underlying payment infrastructure that connects cardholders with merchants. As a result, Amex benefits from having a network effect -- a positive feedback loop in which more merchants accepting its cards make things more valuable for consumers holding its cards, and vice versa.
By having a strong brand and a network effect, Amex is able to defend itself against the threat of competition. This includes existing industry players, as well as new entrants.
NYSE: AXP
Key Data Points
2. Steady financial performance
American Express increased revenue 9% to $65.9 billion in 2024. This helped drive a 19% gain in adjusted earnings per share (EPS). In 2025, the leadership team expects revenue growth of 8% to 10% and an adjusted EPS bump of 12% to 16%. And over the long term, they believe sales will rise at 10% per year (at least), with EPS gains in the "mid-teens."
These are certainly encouraging financial forecasts. While it's usually a good idea to be skeptical when any business provides an outlook, investors have every reason to be optimistic in this situation. This is partly because of Amex's historical performance of steady gains on the top and bottom lines.
But it's also because of other favorable trends. The ongoing "war on cash," as it's called, means that people and businesses will increasingly favor cashless transactions due to convenience and security. And given the rise of U.S. gross domestic product (GDP) and personal spending over time, Amex has robust tailwinds that should push up payment volume running through its network.
Another factor working to Amex's benefit is how its customer base might be shifting. During the first-quarter earnings call, CEO Stephen Squeri said that "As in past quarters, millennial and Gen-Z consumers made up over 60% of new consumer accounts acquired globally in Q1." These customers are increasing their spending at a faster clip than other cohorts. For Amex, building relationships early on with this valuable demographic could lead to sustainable revenue.
3. A compelling valuation
Amex shares have taken a hit along with the overall stock market. As of April 21, they were trading 26% below their all-time high in January. The investment community might be concerned about a looming economic downturn.
But the valuation is too hard to pass up. The stock can be bought at a price-to-earnings (P/E) ratio of around 17, about the cheapest level in the past year.
Amex also does a great job returning capital to shareholders. In 2024, it paid $2 billion in dividends, and repurchased $5.9 billion worth of outstanding stock. This kind of capital allocation policy can juice returns for investors.
