This Is My Favorite Warren Buffett Stock, and It's One of His Biggest Bets (Hint: It's Not Apple or Alphabet)

Berkshire Hathaway continues to hold a long-tenured, large stake in American Express — 151.6 million shares worth roughly $50 billion at the end of Q3, about one-fifth of its equity portfolio — while AmEx delivered solid 2024 results with revenue up 9% to $65.9 billion and EPS up 25% to $14.01. Management returned $7.9 billion to shareholders in 2024 ($5.9B buybacks, $2.0B dividends), and recent quarters showed accelerating momentum (Q2 revenue +9%/EPS +17%; Q3 revenue +11%/EPS +19%) aided by a successful U.S. Platinum card refresh that doubled new account acquisitions; the stock trades at a P/E of ~24 versus Apple at 36 and Alphabet at 30. The note highlights durable economics, pricing power and shareholder returns but flags recession-driven spending declines, higher credit losses and intensified competition as primary risks.

Analysis

Market structure: The combination of strong top-line momentum and large, stable ownership (Berkshire) reinforces American Express’s pricing power in premium charge-cards, favoring merchants and travel-related services that capture higher-spend cohorts. Expect modest share gains in the premium segment over 12–24 months but increased competition at the entry-level will compress margins for subprime players; bond markets should price a modest tightening in corporate credit spreads (+10–25bps) if consumer delinquencies tick up.

Risk assessment: Key tail-risks are a shallow recession driving net charge-offs >200bps above baseline within 12 months, and regulatory action on interchange fees that could shave 5–10% off NIM over multi-year windows. Immediate (days/weeks) risks are headline-driven volatility around monthly spend prints; medium-term (3–12 months) hinge on unemployment and 60+ day delinquency trends; long-term (2–5 years) risks are platform competition (big tech/BNPL) eroding account economics.

Trade implications: Tactical: favor a measured overweight in AXP (conviction window 6–12 months) funded by trimming large-cap tech where relative P/Es are richer (AAPL/GOOGL). Use defined-risk options: buy 6–9 month call spreads on AXP to capture upside if EPS acceleration continues, and consider pair trades (long AXP, short AAPL) to express rotation into financials. Entry on pullbacks of 5–12%; trim into 10% rallies.

Contrarian angles: Consensus underestimates underwriting second-order effects from aggressive new-account acquisition (eg. Platinum refresh) — customer mix dilution could surface as higher vintage losses within 3–9 months. Conversely, markets may underprice buyback durability: sustained $5–6B annual repurchases would support a higher multiple; monitor buyback cadence next four quarters to validate upside.

Key Decisions for Investors

• Establish a 2–3% long position in AXP for a 12‑month horizon; set a tactical stop-loss at 12% downside and a profit target of +25% (or re-evaluate on AXP >15% QoQ EPS surprise).
• Implement a relative-value pair: long AXP 2.0% / short AAPL 1.5% (equal-dollar) for 6–12 months to capture premium-to-growth rotation; unwind if unemployment falls >50bps or AXP 60+ day delinquency rises >50bps QoQ.
• Buy a 6–9 month AXP call spread (defined-risk): buy near-ATM call, sell 15–20% higher strike to limit cost; target breakeven on AXP +12–15% move and cap loss at max premium paid.
• Reduce AAPL/GOOGL exposure by 2–4% and redeploy into financials/consumer discretionary (AXP, travel-related names) if consumer spend prints soften but buybacks remain intact; reassess after next two monthly spend reports.
• Trigger-based risk control: if AXP 60+ day delinquency >2.0% or net charge-off rate increases by >75bps QoQ, cut AXP allocation by 50% within 5 trading days.