- Global Consumer group: US and international credit card services, Travelers checks, consumer travel etc.
- Global Business-to-Business group: Corporate Employee Card, Corporate Purchasing, American Express Business Travel, Global Network and Merchant Services.
Here are some things I like about AXP:
- AXP has one of the top global brands. It attracts high-spending, creditworthy customers who are attractive to banks that issue credit cards. Since AXP won the anti-trust suit in 2004, many banks have started offering American Express branded cards.
- There is a worldwide trend to use credit cards instead of cash, which has boosted the stock prices of Visa (NYSE:V) and MasterCard (NYSE:MA), but AXP should also be included in this group, especially longer term as India and China produce more upscale consumers.
- AXP is a Warren Buffett stock that usually sells at a premium PE. But it was available yesterday at a forward PE ratio of only 11.5 times earnings.
- Return on equity has been running over 35% per year.
- Zero sub-prime exposure.
- High free cash flows and rock solid balance sheet.
- Shareholder friendly. AXP pays a growing 1.7% dividend and management also returns 3-4% a year via share buybacks.
- Great Sponsorship: Aside from Berkshire Hathaway, AXP is the #1 holding of Blue Ridge Capital (Griffin) and large positions are held by Clarium Capital (Thiel), Eton Park Capital (Mindich) and Tweedy Browne among others.
- High lending standards.
- The travelers check business is a true cash cow.
Normally I like to use a covered call strategy with blue chip stocks, but AXP is just too cheap. I think it is worth at least $55/share (currently trading near $41). I would consider writing covered calls against my position if AXP were to trade up to 50 or higher in the next few months.
Full disclosure: I am long AXP shares.