Image source: The Motley Fool
It's pretty crazy for me to think that legendary investor Warren Buffett has owned part of his portfolio for longer than I've been alive. This shows that he practices what he preaches about finding good value stocks and holding them for the long term. Since he's had one for six decades and doesn't seem to show any signs of selling, I'm wondering if it's time for me to buy too.
the brief history
The action I'm talking about is American Express (NYSE: AXP). It is a family brand that was founded in 1850 in the United States as a freight and express mail transportation company.
In the following decades it expanded into travel services and financial services, launching a credit card and using plastic cards in the late 1950s. It is these cards and similar financial accounts that make up the company that exists today.
Buffett first bought shares of American Express in the early 1960s, acquiring a notable stake in 1964 worth $13 million. Fast forward to the latest presentation from Buffett's investment company Berkshire Hathawayshows that it represents just over 15% of the portfolio. The total stake is worth $41.1 billion and represents more than 21% of American Express's outstanding shares available.
A lesson to learn
American Express stock is up 57% in the past year alone. I can't know exactly what the stock price was in 1964 when Buffett first bought it. But according to my calculations it would have been less than 1 dollar. The stock now trades at $297.
The first lesson for me here is that there is a clear benefit to buying and holding a stock that is performing well. This is in contrast to selling after a few months to make quick money. American Express has built a solid business model. And it has done this for decades by being flexible and adapting to changing consumer needs.
For example, in the last quarterly report there was talk of having “We have already completed 40 product updates globally since the beginning of the year, including the recent launch of our new Gold Card for US Consumers.” It also focuses on Millennial and Gen-Z consumers. These constitute the fastest growing group of consumers in the United States for the company.
As it continues to adapt to consumers in the future, I think its profits can continue to increase.
Record highs
However, I am a little concerned that the stock has recently hit all-time highs. With a P/E ratio of 21.88, that's almost double the figure you'd use to mark a fair value.
Being potentially overrated is just one point. The brand faces much tougher competition from other providers, especially FinTech startups. Therefore, future growth could be slowed as these factors eat into market share.
Ultimately, it's a stock I'm putting on my watch list. I would look to buy if the share price went down this year. But at current levels, the reward versus risk doesn't add up for me right now.
