American Express Company (NYSE:AXP) — I featured Citigroup Inc (NYSE:C) as the previous Trade of the Day, noting that the oversold financial sector had gotten too cheap for investors to ignore. Today’s pick is in that same vein, with AXP stock showing a recent breakout on the chart.
Despite intense competition and currency challenges, this leading credit card company reported better-than-expected earnings last month of $2.10 per share. Following the earnings announcement, S&P Capital IQ Equity Research maintained its “Buy” rating on AXP stock but lowered its 12-month price target to $70 from $72. Its analysts noted that this price objective was based on 12.9 times their forward EPS estimate of $5.42 and takes into account American Express’ share buyback plan, which is expected to reduce share count by 5% a year.
But Capital IQ may be too conservative in their stance on AXP stock, especially if the U.S. dollar weakens. And the chart points to a higher target.
Technically, after topping just under $95 per share in December 2014, AXP stock fell in a series of step-down consolidations. It finally hit bottom just above $50 in February of this year. This developed into the cup of a bullish cup-and-handle formation. That pattern was confirmed by Friday’s break through the stock’s bearish support line and 200-day moving average, currently at at $63.84.
The target for the bullish breakout is $75, which is the midpoint of the November/December 2015 consolidation. Traders should buy shares at the market price and, if successful, the trade will result in a gain of about 14%.
Long-term investors should also consider adding AXP stock to their portfolios as a cornerstone investment in the financial sector for even higher capital gains and income. American Express recently increased its quarterly dividend to 32 cents per share for a current forward annual yield of just under 2%.
