The credit card market is anticipated to continue strengthening further in 2016, with credit card companies being very much appreciated by institutional investors and other smaller-scale investors for their earnings predictability, strong growth and attractive dividend yields. As we are at the beginning of a rising interest rate environment, financial lenders such as banks and credit card companies will most likely see their bottom-line growth accelerate in the months and years ahead due to widening rate spreads. Meanwhile, the 60-day credit card delinquencies are anticipated to equal 2.1% in 2016, down from a rate of 2.5% recorded last year. At the same time, the number of credit cards in circulation is anticipated to increase as well this year, so credit services companies appear to be attractive investment opportunities at the moment. For that reason, Insider Monkey decided to compile a list of five credit services stocks favored by the hedge funds tracked by our team.
Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).
#5. American Express Company (NYSE:AXP)
– Investors with long positions as of March 31: 52
– Aggregate value of investors’ positions as of March 31: $12.56 Billion
The number of hedge funds monitored by Insider Monkey with long positions in American Express Company (NYSE:AXP) dropped to 52 from 53 during the first quarter of 2016, while the value of those positions shrunk by nearly 11% to $12.56 billion. That decline was mainly driven by the 11% drop in the company’s share price in the first quarter. The 52 funds invested in American Express accumulated roughly 21% of the company’s outstanding shares. The shares of the global services company have gained 10% in the past three months, but the stock is still down 5% for the year. It has been rumored that the fourth-largest U.S. bank by assets, Wells Fargo & Co (NYSE:WFC), may be interested in acquiring American Express, which has been said to be looking for potential acquirers. American Express pays out a quarterly dividend of $0.29 per share, which equates to an annual dividend yield of 1.76%. Warren Buffett’s Berkshire Hathaway, a major shareholder of Wells Fargo, owns 151.61 million shares of American Express Company (NYSE:AXP) as of the end of March.