Insights

1 Warren Buffett Stock That Has Built an Incredibly Strong Brand

Legendary investor Warren Buffett and his company Berkshire Hathaway have owned the credit card company and payments network American Express (NYSE: AXP) since the 1960s. Today, American Express is the third-largest holding in Berkshire’s equities portfolio and makes up more than 8% of the total portfolio. The total stake is worth tens of billions of dollars. One of the reasons Buffett loves American Express is because of the powerful brand the company has built — Buffett has even gone as far to call the brand “special.” This theme continued to play out in the early months of 2022. Let’s take a look. 
Strong card acquisition growth
In the first quarter of the year, American Express continued to demonstrate the strength of its brand with incredibly strong growth in new card acquisition.

Image source: American Express.

The company added 3 million new cards in the quarter, largely due to strong demand from millennials, Gen Z consumers, and small and medium-sized businesses. The growth in the quarter is the most card acquisitions the company has generated over the last five months. Card acquisitions grew 43% from the first quarter of 2021 and 11% from the previous quarter. Additionally, the growth comes after American Express jacked up the annual membership on its popular platinum card from $550 per year to $695 last year. Marketing costs are up 27% year over year but are down from marketing spend in each of the three prior quarters.

Image source: Getty Images.

On the company’s recent earnings call, American Express CEO Stephen Squeri said the available pool of millennial and Gen Z borrowers is growing, with roughly 60% of the consumer cards acquired in the quarter from millennials. “And as we look at the opportunities, you know, we were able to bring in probably more cards than we thought we were in the first quarter,” Squeri said.
Not only did American Express manage to bring in more cards, but it also grew outstanding period-end credit card loan balances in the first quarter, a feat other large credit card players like JPMorgan Chase and Citigroup failed to accomplish.

Image source: American Express.

In particular, the number of proprietary cards in force, which are cards issued directly by American Express, jumped to 72.8 million, up 6% year over year. An analyst noted that the company hasn’t experienced that kind of growth in proprietary cards in force since 2018.
The brand continues to win
As shown in the quarter, the American Express brand continues to be very special, and perhaps even more importantly, continues to have tremendous value even after two years of depressed travel and entertainment activity, which is a big part of American Express’ business. Now, with travel and entertainment rebounding significantly in Q1 and the world adapting to life after the brunt of the pandemic, it looks like American Express is back in the driver’s seat. The company is not exactly cheap, trading at about 18.5 forward earnings. But it is the company’s powerful brand that has enabled long-term success, and has made the stock a staple in Buffett’s and Berkshire’s portfolios for decades.
American Express is an advertising partner of The Ascent, a Motley Fool company. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool owns and recommends Berkshire Hathaway (B shares). The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy. –

Legendary investor Warren Buffett and his company Berkshire Hathaway have owned the credit card company and payments network American Express (NYSE: AXP) since the 1960s. Today, American Express is the third-largest holding in Berkshire’s equities portfolio and makes up more than 8% of the total portfolio. The total stake is worth tens of billions of dollars. One of the reasons Buffett loves American Express is because of the powerful brand the company has built — Buffett has even gone as far to call the brand “special.” This theme continued to play out in the early months of 2022. Let’s take a look. 

Strong card acquisition growth

In the first quarter of the year, American Express continued to demonstrate the strength of its brand with incredibly strong growth in new card acquisition.

Image source: American Express.

The company added 3 million new cards in the quarter, largely due to strong demand from millennials, Gen Z consumers, and small and medium-sized businesses. The growth in the quarter is the most card acquisitions the company has generated over the last five months. Card acquisitions grew 43% from the first quarter of 2021 and 11% from the previous quarter. Additionally, the growth comes after American Express jacked up the annual membership on its popular platinum card from $550 per year to $695 last year. Marketing costs are up 27% year over year but are down from marketing spend in each of the three prior quarters.

Image source: Getty Images.

On the company’s recent earnings call, American Express CEO Stephen Squeri said the available pool of millennial and Gen Z borrowers is growing, with roughly 60% of the consumer cards acquired in the quarter from millennials. “And as we look at the opportunities, you know, we were able to bring in probably more cards than we thought we were in the first quarter,” Squeri said.

Not only did American Express manage to bring in more cards, but it also grew outstanding period-end credit card loan balances in the first quarter, a feat other large credit card players like JPMorgan Chase and Citigroup failed to accomplish.

Image source: American Express.

In particular, the number of proprietary cards in force, which are cards issued directly by American Express, jumped to 72.8 million, up 6% year over year. An analyst noted that the company hasn’t experienced that kind of growth in proprietary cards in force since 2018.

The brand continues to win

As shown in the quarter, the American Express brand continues to be very special, and perhaps even more importantly, continues to have tremendous value even after two years of depressed travel and entertainment activity, which is a big part of American Express’ business. Now, with travel and entertainment rebounding significantly in Q1 and the world adapting to life after the brunt of the pandemic, it looks like American Express is back in the driver’s seat. The company is not exactly cheap, trading at about 18.5 forward earnings. But it is the company’s powerful brand that has enabled long-term success, and has made the stock a staple in Buffett’s and Berkshire’s portfolios for decades.

American Express is an advertising partner of The Ascent, a Motley Fool company. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool owns and recommends Berkshire Hathaway (B shares). The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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