American Express (AXP), one of the world's top credit card companies, has also long been a favorite of Berkshire Hathaway (BRK-A, BRK-B) CEO Warren Buffett.
"You can't create another American Express," Buffett told Bloomberg in December. "I could create another shoe store. I could create another business publication. I could do all kinds of things with hundreds of billions of dollars. But I can't put in the minds of people what is in their minds about American Express."
As of September 29, 2022, Berkshire held 151,610,700 AmEx shares, or 20.29% of the total. At the end of 2021, AmEx was Berkshire's largest securities holding by weight and third-largest holding by market cap, with its stake valued at $24.8 billion — which grew to $26.1 billion by September 29, 2022.
In 2022, Berkshire built a stake of at least 20.2% of Occidental Petrleum (OXY) and obtained regulatory approval to buy up to 50% of the oil giant's common stock. So while AmEx may no longer be Berkshire's largest holding by weight, the company's value to Berkshire is clear.
“It's sort of like a Good Housekeeping seal of approval," American Express CEO Stephen Squeri told Yahoo Finance recently. "Warren and Berkshire are iconic investors, and to have him speak about the brand and speak about the company, and to speak about the direction that we're going so enthusiastically [is important]."
In 2020, when the pandemic hit, AmEx stock declined to as low as $66 as lockdowns and travel bans dragged down profits by 39%. But Buffett retained his stake in the company, even as he sold airline and bank stocks.
AmEx was able to rebound after enduring the COVID-induced economic downturn and reached its highest price in decades at $196 a share in 2022.
That momentum has carried over into 2023: AmEx's latest quarterly results showed a slight miss for its fourth quarter, but the company indicated it remains positive on its outlook for the remainder of the year.
Although AmEx's brand emerged from the pandemic in a position of strength, that hasn't always been the case.
Buffett's interest in AmEx began in the 1960s, during the first wave of consumer credit via banks. For American Express, it wasn't without a bit of controversy.
In 1963, Anthony De Angelis, the founder of Allied Crude Vegetable Oil Company, used his company's inventory as collateral for loans from more than 50 companies, including AmEx. De Angelis used these loans to drive up prices in the soybean oil market and increase the value of Allied.
Eventually, a whistleblower came forward claiming that Allied was misleading AmEx to get more loans by filling up oil tanks with water. This was proven to be true and De Angelis filed for bankruptcy and went to prison for seven years. The impropriety became known as the "salad-oil scandal" and mounted concerns on Wall Street as AmEx now had to pay Allied's bill.
"Every trust department in the United States panicked," Buffett said about the scandal. "I remember the Continental Bank held over 5% of the company and all of a sudden not only do they see that the trust accounts were going to have stock worth zero, but it could get assessed. The stock just poured out, of course, and the market got slightly inefficient for a short period of time."
Buffett used the opportunity to acquire 5% of AmEx for roughly $20 million.
The credit card boom of the '70s and '80s made AmEx a top player in the market. By the late '90s, two-thirds of American households had a credit card. Buffett could now go all out and make his first large stake in the company in 1991 with $300 million.
Within seven years, Buffett owned more than 50 million shares of the company. Berkshire Hathaway hasn't purchased any American Express stock since the late 1990s, but its stake in AmEx has continued to increase as a result of stock buybacks.
Between 1998 and 2005, Berkshire's stake climbed from 11.2% to 12%. In 2020, AXP became Berkshire's largest holding by percentage.
And even though AmEx had a rough start to 2016 financially, Buffett stood by his investment.
“Now we own 20% of American Express,” Buffett said at the 2022 Annual Berkshire Hathaway Shareholders Meeting. “That happens to have worked out extremely well. If they overpaid for the stock and all that — it doesn’t solve every problem — but it’s a wonderful thing if you’ve got an asset you like and they take your ownership interest up.”
One of American Express's greatest assets has been its perception as a status symbol, which has endured after undergoing a series of rebranding efforts.
The company has a simple revenue model: Most of its revenue is generated from interest from balances and fees from cardholders and from merchants. Merchants are charged more than AmEx competitors such as Visa (V) or Mastercard (MA) because AmEx cardholders tend to be wealthier and spend more, which benefits merchants down the line.
AmEx also collects revenue from the data it gathers on cardholder spending, which is used to target marketing and provide offers to customers. That has, in turn, helped AmEx capture the interest of millennial and Gen Z consumers in recent years as the company has evolved from being a traditional luxury credit card provider to a digital payment provider.
AmEx rebranded its Platinum card as a "lifestyle card" by increasing its fees and at-home perks and dove into e-commerce and food delivery services with by increasing rewards. Since the strategic changes went into effect, the company doubled its number of Platinum cardholders, with millennials and Gen Z customers making up roughly 60% of all new consumer cardholder growth.
And as pandemic restrictions were lifted, AmEx grew its global reach with new travel benefits. They offered more rewards, points, and a new Centurion airport luxury lounge. AmEx's payment method is now accepted on most websites in over 178 countries, according to Statista.
“This whole concept of generational relevance is huge for us," Squeri told Yahoo Finance. "We'll continue to modify our products and add value to our products that not only speaks to millennials but speaks to Gen Xers and speaks to Boomers. Millennials and Gen Zers are the fastest-growing segment that we have.”
The AmEx CEO also stressed that Buffett "gets it right" as AmEx's largest shareholder.
"He gets that the AmEx brand is special," he said. "He tells me that all the time. We both agree the customer base is special. Anybody that has Warren as their largest shareholder would be pretty happy."
—
Tanya is a data reporter at Yahoo Finance. Follow her on Twitter. @tanyakaushal00.
Click here for the latest trending stock tickers of the Yahoo Finance platform
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance app for Apple or Android
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube
Related Quotes
Buy and hold forever? Not always.
While its investments in building materials manufacturer Louisiana Pacific and investment banking firm Jefferies Financial Group were familiar buys in the Berkshire investing mold and constituted relatively small investments, the third new portfolio addition was eye-catching. Berkshire Hathaway purchased 60 million shares of Taiwan Semiconductor Manufacturing Company (NYSE: TSM), which was worth approximately $4.1 billion at the time of publication of the investment conglomerate's most recent 13-F filing in November. The big buy made TSMC Berkshire Hathaway's 10th-largest overall stock holding and marked the first time that it had held a position in a pure-play semiconductor company since it exited a small position in Intel back in 2012.
Thousands of Amazon reviewers swear by these supplements for better hair, skin and nails.
Exxon Mobil posted mixed fourth-quarter financial results Tuesday, beating earnings estimates but missing on on revenue views. Exxon Mobil stock edged lower Tuesday. Earnings: Exxon Mobil reported EPS growing 66% to $3.40 while revenue shot up 12% to $95.43.
Because of that, Chevron could learn a valuable lesson from Apple (NASDAQ: AAPL), which, like the oil giant, is a top holding of Warren Buffett's Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B). Apple is by far Berkshire's largest position, at more than $132 billion, which is over 38% of Berkshire's investment portfolio.
Amazon (AMZN) upped that amount Prime members will have to spend to get free grocery delivery via Amazon Fresh. Beginning February 28, shoppers will need to spend $150 or more to receive free grocery delivery. That's up from $35.
Pfizer's declining COVID-19 franchise and upcoming patent expirations have weighed heavily on its stock.
"There's a lot that can happen between now and then," Prince Harry said. Here's everything we know about the possibility of the Sussexes at King Charles's coronation on May 6.
Giverny Capital, an investment management company, recently published its fourth-quarter investor letter in 2022. A copy of the same can be downloaded here. The model portfolio of the firm appreciated 8.49%, net of fees in the fourth quarter compared to a 7.56% return for the Standard & Poor’s 500 Index. For 2022, the fund delivered a […]
After the Netflix show 'Cobra Kai' announced season 6 would be its last season, 'Karate Kid' cast member Ralph Macchio posted an Instagram about the news.
Inflation made the headlines through most of last year, for all the worst reasons: it ran far too high, peaked above 9% in June, and the inflationary pressures pushed down hard on stock markets. The Fed jacked interest rates up their highest level in over a decade, risking recession to fight the rise in prices. Today, inflation is still in the headlines, although the tone has shifted. The annualized rate is trending downward; the December number came in at 6.5% year-over-year. While this is good
Lucid shares fall after initially rising on talks of a possible buyout from the Saudi Arabian Investment Fund.
General Motors is developing a lithium deposit mine in Nevada to directly source the material, which is critical for making batteries to power electric vehicles.
AGNC Investment (AGNC) delivered earnings and revenue surprises of 10.45% and 91.78%, respectively, for the quarter ended December 2022. Do the numbers hold clues to what lies ahead for the stock?
"While our results clearly benefited from a favorable market, the counter-cyclical investments we made before and during the pandemic provided the energy and products people needed," said CEO Darren Woods.
McDonald's (MCD) posted its fourth quarter earnings results Tuesday before market open that beat analyst expectations.
Adani and his companies are facing accusations of fraud from a New York short-seller, threatening the group's shares and his fortune.
Johns Hopkins University professor of applied economics Steve Hanke shares his outlook on the upcoming Federal Open Market Committee decision on interest rates and the current state of the money supply.
The pharmaceutical company is bracing for a top-line dip. Pfizer said it expects Covid-19 vaccine sales to drop to $13.5 billion in 2023.
Demand for construction and mining equipment as well as engines for transportation and energy generation stayed strong even as the company charged higher prices.
How Warren Buffett's Berkshire Hathaway came to own 20% of American Express – Yahoo Finance
