Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett is widely regarded as one of the greatest investors of all time. His track record of beating the market for decades has earned him a loyal following of admirers and imitators. One of the key principles Buffett follows is to invest in high-quality businesses that have durable competitive advantages and can generate consistent returns over the long term. He also likes to buy these businesses at reasonable prices and hold them for as long as possible, sometimes forever.
One of Buffett's top holdings is American Express (NYSE: AXP). The credit card giant first debuted in Buffett's portfolio in 1964, when he bought a stake in the company after the infamous "salad oil scandal" that rocked the company's share price. Buffett recognized that American Express' core business was still strong and that the market had overreacted to the news.
Although Buffett didn't hold on to his original shares in the credit card behemoth, he would later make American Express a top-tier holding for Berkshire Hathaway starting in the early '90s. Today, Berkshire Hathaway owns a 20% stake in American Express. It is also the holding company's third-largest stock holding as of this writing.
Why does Buffett love American Express so much?
There are several reasons why this stock is a great buy-and-hold investment for long-term investors.
First, American Express has a strong brand that is synonymous with quality, prestige, and trust. The company has been in business since 1850 and has survived many economic downturns and crises. It has a loyal customer base that values its products and services, especially its premium cards that offer various perks and benefits.
Second, American Express has a unique business model that sets it apart from other credit card issuers. Unlike Visa and Mastercard, which mainly act as payment networks that connect merchants and cardholders, American Express operates both as a network and as an issuer. This means that it not only collects fees from merchants for processing transactions, but also lends money to cardholders and earns interest income from them. This gives American Express more control over its pricing and risk management, as well as more opportunities to cross-sell other products and services to its customers.
Third, American Express has a diversified revenue stream. The company generates revenue from four segments: U.S. consumer services, commercial services, international card services, and global merchant and network services. These segments cater to different types of customers, such as individuals, small businesses, corporations, and merchants. They also offer different types of products and services, such as cards, loans, travel, rewards, insurance, and digital payments. This diversification helps American Express mitigate the impact of any single market or product on its overall performance.
Fourth, American Express has a solid track record of growth and profitability. The company has consistently grown its revenue and earnings over the past decade, despite facing several challenges such as increased competition, regulatory changes, and the COVID-19 pandemic.
Why American Express stock is still a worthy buy-and-hold
Buffett, through Berkshire Hathaway's annual letter, has previously stated that his company essentially completed its purchases of American Express stock back in 1995. Berkshire Hathaway's more passive stance toward the credit card giant shouldn't deter lay investors, however.
Apart from the features listed above, American Express also offers enormous shareholder rewards such as an aggressive share buyback policy and a modest, albeit highly sustainable, dividend yield of 1.5%. It also operates in a key segment of the global economy, ensuring its longevity. So, if you're looking for a bona fide buy-and-hold play, American Express should definitely be on your radar.
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American Express is an advertising partner of The Ascent, a Motley Fool company. George Budwell has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Mastercard, and Visa. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.