Meet the Secret Ingredient That Makes American Express and Costco Recession-Resistant Stocks to Buy Even If the S&P Sells Off in 2026.

American Express (AXP) and Costco (COST) exemplify successful membership-driven business models, outperforming the S&P 500 through distinct strategies that foster strong customer loyalty. AXP attracts affluent consumers and Gen Z with generous rewards ($16.6B in 2024) that significantly exceed card fees ($8.45B), recouping this through high merchant fees (69.8% of 2024 revenue) while maintaining a low 2% net write-off rate. Costco, conversely, utilizes membership fees as its primary profit driver, enabling razor-thin merchandise margins (3.8% operating margin) to deliver value to customers. While both are considered strong long-term investments, AXP is presented as a better value at 22.3x forward earnings compared to COST's 47x, with its rapidly increasing dividend favored over Costco's occasional special payouts.

Analysis

American Express (AXP) and Costco (COST) both leverage successful membership-based business models to achieve strong customer loyalty and consistent outperformance of the S&P 500 over three, five, and ten-year periods, though their profit mechanics differ significantly. AXP's strategy centers on attracting affluent consumers, along with a growing base of millennials and Gen Z, through a rewards program that cost $16.6 billion in 2024, nearly double its $8.45 billion in card fee revenue. This deficit is covered by merchant discount revenue, which accounts for 69.8% of total revenue. AXP's pricing power is evident in recent fee increases on its Platinum and Gold cards, and its risk management appears robust with a low 2% net write-off rate. Conversely, Costco uses its membership fees as its primary profit driver, enabling it to maintain a razor-thin 3.8% operating margin on merchandise and pass significant value to consumers. This value-centric approach has proven effective in the current consumer spending environment. From a valuation standpoint, the article positions AXP as the more attractive option, trading at 22.3 times forward earnings versus COST's 47 times.

Key Decisions for Investors

• Value-oriented investors should consider American Express over Costco, given its significantly lower forward P/E ratio of 22.3x compared to Costco's 47x.
• For AXP, investors must monitor the net write-off rate, currently at a healthy 2%, as a critical indicator of credit risk management, especially as the company expands its customer base.
• Investors in Costco should prioritize tracking membership growth and renewal rates, as these fees are the company's core profit engine and a key buffer against merchandise margin pressure.
• When considering capital returns, investors should weigh their preference for AXP's rapidly growing quarterly dividend against COST's model of funding occasional, large special dividends from cash surpluses.