American Express: A Reintroduction (Ticker: AXP)

Initiating coverage on a stock with a wide, reinforcing competitive advantage

This week, I am introducing American Express to Emerging Moats.

Next week, I will be publishing a comprehensive research report on Wix.com, which just announced a $2 billion share repurchase program (it has a market cap under $5 billion).

Here is the upcoming schedule for Q1, along with past newsletters:

Per usual, if you’d like a complimentary trial to Emerging Moats, send me a DM on Substack.

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“The end of the Costco relationship represents the latest setback for AmEx, which once was known as a status symbol for the affluent but is now under attack from competitors like J.P. Morgan that are also going after wealthy Americans. AmEx is now trying to expand into other areas, such as pitching prepaid cards for low-end consumers, but that strategy will likely take years to pay off. AmEx is also trying to get more small businesses to accept its cards.” - The WSJ, February 12, 2015

The most underrated Buffett investment is American Express. The second time. In 1991, Berkshire Hathaway began buying shares of the premium credit card brand, which subsequently turned into a 100-bagger and remains its second-largest position behind Apple today. If Berkshire Hathaway keeps selling its Apple stake, American Express will soon be its largest single equity position. When raising over $100 billion in cash from stock sales in the past few years, not a single share of American Express has been sold. Curious.

Some may argue that Buffett’s best investment was Apple, being the largest by far at cost. Others may argue Coca-Cola, See’s Candies, or any of the insurance deals. My pick would be American Express due to its significant impact on Berkshire’s total return over the long term, its size relative to the overall portfolio today, and the potential for the stock to deliver further returns for Berkshire Hathaway in the coming decades.

Why does Buffett/Berkshire love American Express? Why are they still holding the stock today while trimming virtually every other equity position?

It is the same reason I have been closely following it as a watchlist stock since 2023. When you truly understand American Express’s business model, you realize it is one of the rare companies with a reinforcing competitive advantage across all four moat categories.

Here is my reintroduction to American Express as the next entry into the Emerging Moats stock universe. As always, I will finish this article with my current valuation assessment and my investment decision.

Let’s begin.

Post-Costco invigoration