The markets have been getting a lot of mixed messages from consumers recently. The Conference Board reported last week that consumer confidence — which came in at 76.2 instead of the expected 70.7 — is at its highest level in years. However, the Bureau of Economic Analysis reported last Friday that personal spending declined by 0.2% last month, when it was expected to increase by 0.2%. What gives? The problem with broad averages is they often don’t provide the insights you need to make good investment decisions. You need to dig deeper.
If you look at low-income versus middle-class versus high net worth consumers, you start to see some interesting trends emerging. We are taking a bullish trade on American Express (AXP) because of what we are seeing in the high net worth segment. These folks are continuing to spend, and they are also much more likely to carry an American Express card in their wallets. After all, “Membership has its privileges.” All of this is good for AXP.
High-net-worth individuals aren’t AXP’s only customers though. AXP continues to benefit from the declining credit card debt delinquency rates we are seeing across the board as consumers try to repair their personal balance sheets. It is also benefiting from the declining savings rates we are seeing in the U.S. The less people are saving, the more they will have to tap their credit cards when times get rough. The fact that the company boosted its dividend by 15% on April 30 doesn’t hurt matters either. Based on the jump in price from $70 to $75, where the stock has been consolidating at what will most likely end up being the half-way point of the move higher, we anticipate AXP will continue to climb toward $80.
Recommendation:Buy to open the AXP July 77.50 calls (AXP130720C00077500)
InvestorPlace advisors John Jagerson and S. Wade Hansen are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next trade and get 1 free month today by clicking here.