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Credit card company American Express has slowly -- and deservedly -- worked its way into becoming one of Berkshire Hathaway’s most important positions.
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If you're ever in need of a new stock pick, you can always borrow an idea or two from Berkshire Hathaway's (NYSE: BRK.A)(NYSE: BRK.B) portfolio of holdings hand-picked by Warren Buffett himself. And you should. Given enough time, Berkshire shares consistently outperform the broad market largely due to the conglomerate's investments in publicly traded companies.
Not every Berkshire Hathaway holding is always a great buy, however. Sometimes they're trading at too steep of a valuation for newcomers, and other times, they've just turned into clunkers.
With that as the backdrop, here's a closer look at two Warren Buffett stocks you can feel good about buying today, but one name you might want to avoid until something big changes for the better.
Many investors don't realize that -- through the attrition of other holdings as well as its own growth -- credit card outfit American Express (NYSE: AXP) is now Berkshire Hathaway's second-biggest stock holding, accounting for 17% of the outfit's portfolio of publicly traded equities. Underscoring this bullishness is the fact that Berkshire also holds stakes in Visa and Mastercard, but has chosen to only hold much smaller positions in both.
Then again, it's not difficult to see what the Oracle of Omaha has seen in AmEx since first establishing the position back in the 1990s. It's not just a payment middleman like the aforementioned Mastercard and Visa. It operates an entire consumerism ecosystem, serving as the card issuer as well as the payment processor, while also managing a perks and rewards program that's attractive enough for some members to pay up to $900 per year to hold the plastic. These perks include credit toward hotel stays and ride-hailing, cash back on grocery purchases, and discounted entertainment, just to name a few. Although some have tried, no rival has been able to successfully replicate this offering.
Of course, it's worth pointing out that American Express's cardholders tend to be a bit more affluent than average, and are therefore mostly unfazed by economic soft patches. As CEO Stephen Squeri pointed out of its Q2 numbers despite the turbulent economic backdrop at the time, "Our second-quarter results continued the strong momentum we have seen in our business over the last several quarters, with revenues growing 9 percent year-over-year to reach a record $17.9 billion, and adjusted EPS rising 17 percent."
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