Potential Buffet Pick Set for Further Growth in 2025: Should Investors Jump In Now?
Berkshire Hathaway's top stock holding at the end of the third quarter remained Apple, but Buffett was offloading large chunks of this position throughout 2024. So, what's Berkshire's biggest bet, excluding recent selloffs? American Express, which is Berkshire's second-largest holding after Apple. Buffett hasn't sold a single share of this integrated payments company, indicating he thinks it's a solid investment.
With American Express' robust earnings and growth story, should investors jump on the bandwagon and copy Buffett's bet? Let's dive into why American Express might be an attractive addition to a diversified portfolio.
A standout business model
American Express has managed to grow earnings at a remarkable pace, even with slower revenue growth. In the trailing-nine-month period, the company's EPS climbed 28% year over year, despite a 9% revenue growth rate. This can be attributed to strong credit and operating leverage. American Express even raised its full-year EPS guidance, hinting at a bright future.
The company's growth is boosted by multiple levers simultanously. In Q3 2024, American Express saw an 8% growth in card member spending, 18% growth in card fee revenue, and a 17% increase in net interest income. This all-around growth creates a strong foundation for future revenue growth, making for a sustainable business.
Attractive valuation
American Express' current price-to-earnings ratio (P/E) is 22, and its forward P/E is 20. This affordably-priced stock is well below the S&P 500's ratio and suggests the company's business momentum is strong enough to support its current valuation.
Considerations and risks
Of course, every investment comes with potential pitfalls. There's no guarantee that American Express' current price is the absolute best entry point. But with a strong business foundation and reasonable valuation, it looks like a solid long-term investment opportunity for savvy investors.
In the context of finance and investing, Buffett has shown no signs of selling his shares in American Express, indicating his confidence in its solid investment potential. American Express' robust earnings growth and strong credit and operating leverage have contributed to a 28% year-over-year increase in EPS, despite a 9% revenue growth rate. With a P/E ratio of 22 and a forward P/E of 20, American Express is currently priced affordably, making it an attractive addition to a diversified portfolio. Looking towards 2023, American Express' earnings and growth story may continue to be exciting as it seeks to capitalize on its all-around growth in card member spending, card fee revenue, and net interest income.
