American Express (AXP 3.98%) stock blew past the S&P 500 in 2024, ending the year up 58%. In fact, it's been one of the best performers in the Dow Jones Industrial Average over the past year, behind only Nvidia and Walmart.
The same features and tailwinds that made 2024 such a fruitful year should make 2025 another great year, and they could be even more impressive this year. American Express reports earnings on Jan. 24. Is now the time to buy, or should you wait?
The resilient clientele
American Express has a differentiated credit card network. It's one of the big three, along with Visa and Mastercard. It's actually the smallest of the three, by far, in card members, but it makes much more in revenue.
| Company | Cards | Revenue (TTM) |
|---|---|---|
| American Express | 150 million | $64 billion |
| Visa | 4.5 billion | $36 billion |
| Mastercard | 3.4 billion | $27 billion |
Data source: American Express, Visa, and Mastercard quarterly reports. TTM = Trailing 12 months.
That's because it targets an affluent clientele who generally spend more money, and it charges annual fees for many of its cards. The fee structure creates loyalty and a reliable earnings source, and the company has a best-in-class rewards program to make it worth it for card members. Fees grow at a steady, high rate, outpacing overall revenue and billed business, which were 8% and 6% respectively year over year in the third quarter.
Image source: American Express.
The varied earnings streams
The fee is one healthy earnings stream and billed business is another, but American Express is more than a credit card company. It also has a robust banking unit, and the large assortment of financial products, including a large business segment, keeps customers engaged and spending more time -- and money -- on American Express products. It also writes the credit for its card members and doesn't need to work together with outside financial institutions.
The banking unit brings cash into the system, and net interest income (NII) is another source of net income. NII increased 17% year over year in the third quarter to $4 billion, and net income increased 2%, inclusive of provisions for losses.
A top Buffett stock
American Express is Warren Buffett's second-largest position behind Apple, accounting for 15.3% of the Berkshire Hathaway portfolio. Buffett loves its global brand name that "travels." Other American Express features that match what Buffett has said he looks for in a great company include its varied earnings streams and growing dividend.
All these things are components of American Express' standout performance in 2024, and they're reasons it could succeed equally as well, if not more, in 2025. Moderating inflation should boost consumer spending, and lower interest rates could improve its banking performance.
These are all reasons American Express is an excellent long-term stock, as well. Like many financial stocks, it tends to do well when the economy is strong, and less well when it isn't. Over the past year, American Express has gone higher after each great earnings report, but it also had some post-earnings dips.
You can't time the market, and if you believe in American Express' opportunities, you can buy it any time. But if you expect it to jump after earnings, it makes even more sense to buy it before Jan. 24.
