Top Picks 2017: American Express
01/10/2017 6:00 am EST
The prospect of a steeper yield curve is boosting financial stocks; my Top Pick for growth in 2017 is a familiar name in the credit and charge card market, says Jack Adamo, editor of Insider Plus.
American Express (AXP) has lagged it peers recently because its disciplined management team declined to enter a bidding war to keep its co-branding deals with Costco and Fidelity Investments.
But such calculated decisions are why Amex has delivered annualized returns of 9% per year compounded for the last twenty years, compared with 5.2% for the S&P 500.
What the market is missing here is that Amex is expanding its lending services. Previously, most of its revenues came from fees. Now, rising rates will boost its top line and margins.
I expect record revenues and profits within a few years. The current yield is 1.7% with a payout ratio of just 27%. The 10-year dividend growth is 10.3% compounded, providing generous income with growth.
At 16-times trailing earnings versus 23-times for the S&P 500, AXP seems destined to continue outperforming the market.
Forward thinking Warren Buffett has not sold a single share of the 151.6 million American Express shares Berkshire Hathaway (BRK.A) has held for decades. American Express is a buy up to $77.