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American Express: An Attractive Buy Amidst Market Volatility

Market turmoil presents a unique buying opportunity for American Express. Despite concerns over tariffs and a potential recession, the company's diversified revenue model and affluent customer base position it favorably for long-term growth.

Date: 
AI Rating:   7

Global Market Downturn
The report highlights the significant impact of the new U.S. presidential administration's tariff strategies on global financial markets, evidenced by the S&P 500 experiencing a 19% drawdown. Such volatility can severely affect investor sentiment and stock prices, particularly for companies within vulnerable sectors, including banking and credit services like American Express.

American Express Price and Revenue Concerns
American Express (AXP) is notably down 29% from its highs, showcasing the volatile market's effects on its stock performance. The anticipated earnings in the face of tariff disruptions, particularly into 2025, raise concerns. Investors worry about how these tariffs will impact consumer spending and the overall economy, which could potentially impact the company's revenue stream.

Strong Earnings Metrics
Despite the turbulent backdrop, American Express presents an attractive investment opportunity. The company has a respectable forward price-to-earnings (P/E) ratio of 15, down from over 20 at the start of the year. Notably, a significant portion (66%) of its revenue comes from credit card swipe fees rather than net interest income, suggesting better resilience in a recession compared to some peers. The average spending per card member being $25,000, coupled with low write-off rates under 2%, indicates stable profit margins that could support earnings, even as fears loom about a downturn.

Capital Return to Shareholders
American Express has consistently returned value to shareholders with a solid capital returns program. The 110% increase in dividends over the last decade, as well as substantial share repurchases ($5.4 billion in 2024), bode well for long-term investors. Such strategies can enhance earnings per share (EPS) and generally support stock price appreciation.

Ultimately, while the potential impacts of tariffs raise questions about near-term growth, the company's fundamentally strong metrics and strategic resilience may captivate long-term investors looking for solid growth prospects.

Stocks:  AXP V MA