A large chunk of American Express’ money comes from the merchant fees it charges when consumers swipe their cards at vendors around the world. Those fees are generally expressed as a percentage of the swipe amount, which means as prices rise, so does the money that American Express collects. That gives it an incredible ability to organically keep up with inflation over time.
The company trades at around 20 times its trailing earnings, which is a bit of a discount when compared to the overall S&P 500. In addition, American Express is such a big player in the business travel market that it’s poised to do well as pandemic restrictions ease and travel picks back up. That gives good reason to believe its earnings growth could see a one-time boost from that recovery.
While Buffett got in big because of a short-term scandal, American Express’ long term business model is probably why he has held on to its shares for so long. That model looks well positioned to handle both inflation and a return to business travel. Add a relatively reasonable valuation to the mix, and it could be worth considering today.
No. 3: Imagine working through the pandemic without its services
Buffett’s company owns a whopping 158 million shares of telecommunications giant Verizon (NYSE: VZ). Originally part of the Bell Telephone System, Verizon emerged a strong player from the breakup of that behemoth. Now known more for its wireless and broadband services than that legacy wired phone service, the company has certainly evolved over time to keep up with changes in the industry.
