Billionaire Ken Fisher Joined Warren Buffett in This Stock

FISHER ASSET MANAGEMENTWarren Buffett has long been a fan of American Express Company (NYSE:AXP), which in addition to credit and charge cards provides travel management services and publishes a variety of media. This quarter Buffett was joined in the stock by billionaire Ken Fisher’s Fisher Asset Management, which closed the second quarter with a position of 6.6 million shares. Fisher has been publishing his stock picks in Forbes magazine and according to an internal review his picks have beaten the S&P 500 11 years out of 14, as well as overall (see more stocks owned by Fisher Asset Management).

Led by growth in non-interest revenues such as discount fees, American Express’s revenue grew 3% in the second quarter of 2012 compared to a year ago. Net income was essentially unchanged, but a decrease in share count drove an increase in earnings per share from $1.10 to $1.15. The company’s numbers have been similarly good for the first half of the year- 1H 2011’s EPS were $2.07, and for the first half of this year EPS are $2.22. This represents a 7% growth rate, which while not sufficient to classify American Express as a growth stock at least indicates that the company is able to maintain its business and grow faster than inflation.

At its current valuation, that is all that American Express Company (NYSE:AXP) needs. The trailing price-to-earnings multiple of 13 and small dividend yield of 1.4% require very little growth to make the stock a good value, and on a historical basis the company has been able to achieve that despite concerns over low consumer spending and economic growth. It should be noted explicitly that the company has a policy of buying back shares, as was implied given the decrease in share count compared to last year; American Express has announced a policy by which it returns 50% of its return on capital to shareholders through either conventional channel of dividends and buybacks, and in the first half of 2012 buybacks consumed over four times as much cash as dividend payments. With a forward P/E of only 12, and this buyback program, the company needs to grow very little in order to hit analyst targets- and hitting those targets would make the current stock price undervalued.

Along with American Express’s brand, this valuation explains Berkshire Hathaway’s ownership of over 150 million shares of the company (find other positions reported by Berkshire Hathaway), a position that is unchanged over the last year. First Eagle Investment Management is another large investor in American Express, reporting 9.9 million shares in its portfolio at the end of June (research more of their favorite stocks). Adage Capital Management, run by Harvard Management alums Phil Gross and Robert Atchison, increased its position 53% in the second quarter to 1.5 million shares.

Credit card titans Mastercard (NYSE:MA) and Visa (NYSE:V) have more ambitious growth trajectories assigned to them by the Street. Their trailing P/Es are higher than those of American Express, but on a forward basis they narrow the gap: 16 for Mastercard, 18 for Visa. They are the market leaders, and of course they also occupy (smaller) positions in Berkshire Hathaway’s portfolio. Last quarter they did get better growth than American Express, with revenue about 10% higher than a year ago, so perhaps they can continue their rise on a sustained basis and close the multiple gap. We would also consider Discover Financial Services (NYSE:DFS) a peer. Discover is the other end of the spectrum: its earnings decreased in its most recent quarter compared to the same period in 2011, but its earnings multiples come in at 9 on a trailing basis and 10 based on forward estimates. We actually think that American Express Company (NYSE:AXP) serves as a happy medium on this continuum: we don’t worry about the stability of its business going forward as we do with Discover, and its valuation does not depend on strong growth as do Mastercard and Visa.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

The 10 Most Expensive Cruise Ships in the World

The 10 Fastest Supercomputers in the World

The 10 Best Countries for Doing Business 2015

6 Most Expensive Fruits In The World

10 Worst Airlines in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!