Warren Buffett stock American Express is flashing a bullish signal after breaking out, with earnings due next week. American Express stock dipped in buy range on Thursday.
The credit card company said on Thursday that it would pay about $230 million to settle a Department of Justice criminal wire fraud investigation.
Amex Cards Become A Gen Z Status Symbol
One of the Berkshire Hathaway chief's oldest holdings has found a new audience. American Express says its growing appeal with younger cardholders has boosted new card acquisitions.
Amex cards turned into a status symbol among Gen Z Americans by satisfying their desire for experiences and special privileges. Younger card members show strong engagement and tend to transact more than older customers, the company says.
According to reports, Buffett began buying Amex stock in the 1960s when he sensed an opportunity during the "salad oil scandal." Berkshire now holds 151.6 million Amex shares, or 21.5% of the total.
The settlement announced Thursday includes $108.7 million to resolve claims from the DOJ's Civil Division that the company deceptively marketed cards to small business, as well as other allegations. Another $138 million settles allegations of deceptive marketing and resolves a federal wire fraud investigation.
The stock saw little impact from the claims and investigation. At the end of September 2024, a huge rally for Amex shares placed the credit card company second only to Apple and ahead of Bank of America in Berkshire's equity portfolio by market capitalization, with the stake worth $41.12 billion, according to whalewisdom.com.
American Express reports earnings for the fourth quarter next Friday, Jan. 24. It jumped into IBD's Relative Strength At New High stock list ahead of earnings after breaking out on Wednesday.
Warren Buffett Stock In Buy Range
American Express stock wobbled in Thursday's stock market action, reaching a 52-week high intraday before closing 0.3% lower. Shares cleared a 307.82 buy point from a flat base the previous session, according to MarketSurge charts.
The relative strength line made a new high as shares broke out, a favorable sign. That is indicated by the blue dot on the daily and weekly charts. The RS line, the blue line in the chart shown, tracks a stock's performance against the S&P 500 index.
Strong bank earnings boosted financial stocks, including Bank of America, near buy points this week.
Berkshire Hathaway's stock portfolio contains a heavy bet on financials. Besides American Express and Bank of America, Buffett owns Mastercard, Visa, Citigroup, Ally Financial and Chubb, among others.
American Express Stock Holds A Buffett Investing Lesson
Despite selling Apple, Bank of America and several other stocks over the first three quarters of 2024, Berkshire Hathaway held on to American Express. Buffett also made no cut to another of his oldest holdings — Coca-Cola.
Trims to either of those two long-time positions are unlikely anytime soon, Buffett has signaled. The companies themselves are among the most established. American Express was launched in 1850 and Coca-Cola in 1886.
In Berkshire's 2023 Annual Report, the investing legend acknowledged past mismanagement at both those iconic companies. But he said: "During 2023, we did not buy or sell a share of either Amex or Coke – extending our own Rip Van Winkle slumber that has now lasted well over two decades. Both companies again rewarded our inaction last year by increasing their earnings and dividends. Indeed, our share of Amex earnings in 2023 considerably exceeded the $1.3 billion cost of our long-ago purchase." (Italics are Buffett's own.)
Buffett added: "The lesson from Coke and Amex? When you find a truly wonderful business, stick with it. Patience pays, and one wonderful business can offset the many mediocre decisions that are inevitable."
The IBD Stock Checkup tool shows that American Express stock averaged 21.8% earnings growth over the past three quarters, above the three-year rate of 10%. It has surged 72% over the past year.
