Warren Buffett is arguably the greatest investor of all time. Also known as the Oracle of Omaha, Buffett has built his reputation by consistently identifying quality stocks trading at attractive valuations over several decades.
Warren Buffett’s company, Berkshire Hathaway, holds several stocks in its portfolio, most of which were picked by the genius investor. Here is one ridiculously cheap Warren Buffett stock you can consider buying right now.
Is American Express stock a good buy right now?
Valued at US$155 billion by market cap, American Express (NYSE:AXP) is among the largest holdings of Berkshire Hathaway. According to its regulatory filings, Berkshire Hathaway owns 151 million shares of AXP worth US$32.5 billion, indicating a 20.9% stake in the company. American Express also accounts for 8.8% of Berkshire’s total portfolio.
In the last 20 years, American Express stock has returned 359% to shareholders. After adjusting for dividends, total returns are much higher at 518%. Comparatively, the S&P 500 index has returned 548% to shareholders in dividend-adjusted gains.
While the S&P 500 index is trading at all-time highs, the rally has been primarily driven by big tech companies, making investors extremely nervous due to their lofty valuations. Comparatively, financial services companies have trailed the broader markets in recent months due to higher interest rates and rising delinquencies.
American Express operates as an integrated payments company and has established a global presence over time. Its products and services include credit cards, charge cards, banking, and other payment and lifestyle services. Moreover, it provides merchant acquisition and processing, servicing and settlement, point-of-sale marketing, and information products and services for merchants.
Is American Express stock undervalued?
American Express is both a payments network and a bank, exposing it to credit risk and the cyclicality associated with the global economy. In the U.S., it has a 13% market share in the credit card segment and is among the largest credit card companies worldwide.
Warren Buffett has owned American Express stock for decades and given its annual dividend payout of US$2.40 per share, earns roughly US$365 million in dividends each year from the investment.
Despite the cyclical nature of bank stocks, American Express has raised dividends at 9.4% annually in the last 18 years, which is exceptional. In fact, American Express has been in business for more than 170 years and has navigated multiple economic downturns in this period.
While several bank stocks were impacted by slower discretionary spending in 2023, American Express reported more than US$60 billion in sales and US$8.3 billion in profits. Its sales grew by 14% year over year, which is in line with management estimates.
American Express emphasized its fastest-growing customer demographics are millennials and Gen Z, positioning it well to benefit from the changing landscape in the upcoming decade.
Priced at 16.7 times forward earnings, AXP stock is really cheap, given analysts expect adjusted earnings to grow by 14.6% annually in the next five years. Further, Wall Street expects American Express to increase revenue from US$60.5 billion in 2023 to US$71.64 billion in 2024.
