We recently compiled a list titled Buffett Stock Portfolio: Top 10 Stock Picks for 2024. In this article, we will look at where American Express Company (NYSE:AXP) ranks among the top 10 stocks in Buffet's portfolio.

Warren Buffet is one of the most accomplished investors in the history of Wall Street. According to Bloomberg’s Billionaire Index 2024, the Oracle of Omaha has a net worth of $143 billion, making him the ninth richest person in the world. His wealth would have been much more had he not decided to donate most of his vast fortune to charities. Since 2006, Buffet has donated over $55 billion to various charitable organizations, with a majority of the gifts going to the Bill & Melinda Gates Foundation.

Buffet rose to prominence in 1965, after transitioning his investment firm into a conglomerate that held stakes in companies belonging to a broad range of industries. Between then and 2023, his firm earned average annual returns of 19.8%, outperforming most stock indices that delivered returns around the 10 percent mark during this period. However, this year, Buffet seems to be in a defensive mode and is currently in the news for his sell-off spree, significantly reducing his investments in several notable companies.

There have been mixed opinions about Buffet hunkering down on stocks. Edward Jones analyst, Jim Shanahan, said that the actions make him ‘concerned’ about Buffet’s outlook for the stock market and the American economy. In contrast, Daniel Ives, a Wedbush analyst, is less worried and believes that despite the selling spree, Berkshire still holds the top positions in those stocks by large margins, which should not be viewed as a ‘smoke signal for bad news ahead’.

So what will Warren Buffet do with all that cash? Andrew Bary, the associate editor at Barron’s, recently stated that the billionaire has been on the look for a major acquisition for some while now, which has so far proven elusive. He believes the Berkshire CEO may just hold the cash for some while, earn interest on Treasury Bills, and wait for potential opportunities to grab in the stock market.

Another factor that has likely contributed to Warren Buffet dumping stake in some of his top stocks is the speculation around the increase in capital gains tax. The debate on the tax rate has been on for some time now and has even become a talking point in the run-up to the presidential elections. Vice President, Kamala Harris, during a speech in New Hampshire this month, proposed to raise the long-term capital gains tax for wealthy individuals to 28%.

The current tax rate is 21% when a gain is realized. Massive gains over the long term result in a large tax. Warren Buffet invested in stocks he is currently selling a long time ago, and hence, is sitting on handsome gains. The rationale behind selling these stocks could be to capitalize on the gains as much as possible on the current low tax rate, instead of paying hefty taxes later if the rate were to be increased.

Methodology

We scanned Warren Buffet’s portfolio, as of June 30, 2024, and picked the top 10 stocks according to their stake value. The figures were sourced from the Insider Monkey Database.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

American Express Company (NYSE:AXP)

Stake Value as of Q2 2024: $35,105,457,585

American Express Company (NYSE:AXP) is a bank-holding and financial services company, that specializes in payment cards. The stock has had an impressive 2024 so far, with its share price appreciating 44% year-to-date to reach a record-high price of $272.73 per share earlier this month. It is one of the top picks from the Buffet stock portfolio, with the hedge fund having stakes valued at over $35 billion as of June 30.

In Q2 2024, the company posted an all-time high revenue of $16.3 billion, registering a 9% year-over-year growth. Net income for the quarter stood at $3 billion, resulting in earnings per share of $4.15, beating analysts’ expectations of $3.26. The strong results were primarily driven by the company’s premium customer base, which comprises long-tenure, high-spending individuals with excellent credit profiles. American Express continues to lure premium customers toward its superior products, resulting in double-digit card fee growth over the last 24 successive quarters.

The company has also observed a significant increase in its scale of business. Revenues have grown 50% compared to the end of 2021, while card member spending has also expanded by 40%. Cards-in-force are up by 20%, or 20 million, and the number of merchant locations is also up by 30 million, representing around a 50% rise.

American Express Company (NYSE:AXP) has also made several strategic investments in marketing, technology, control management, and value proposition, to enhance its unique membership model through ongoing product innovations. For instance, it regularly refreshes product offerings to add value and retain its attractiveness for customers. The company remains on track to refresh close to 40 existing products by the end of FY 2024.

After solid results in the first half of the year, the company has revised its guidance for the full year and now expects EPS for 2024 to be in the range of $13.30 to $13.80, up from the initial forecast of $12.65 to $13.15. Revenue growth is also expected to be between 9% and 11%. However, net interest income, which grew 20% in Q2, is anticipated to moderate as the year progresses due to an expected dip in loan growth rates.

Overall, the stock’s performance remains strong and continues to increase investor interest. According to Insider Monkey’s database for Q2 2024, 68 hedge funds had investments in the company, up from 66 in the first quarter.

Overall, AXP ranks 3rd among the Buffett Stock Portfolio: Top 10 Stock Picks for 2024. While we acknowledge the potential of AXP as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AXP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published on Insider Monkey.