Best Stocks for 2016: American Express Company (AXP) — STILL Don’t Leave Home Without It

Editor’s note: This column is part of our Best Stocks for 2016 contest. Paul R. La Monica’s pick for the contest is American Express Company (AXP).

Here’s the good news for American Express (AXP) investors: AXP stock is up more than 30% from the lows it hit in February.

10BEST2016_final_185x185The bad news? American Express shares are still down 4.7% year-to-date even as the S&P 500 and Dow are back in the black.

Wall Street is still worried about how AXP will fare without Costco Wholesale Corporation (COST). AmEx is in the process of being replaced by Visa Inc (V) and Citigroup Inc (C) as the backers of the exclusive Costco credit card.

AXP Earnings Paint Brighter Picture

AmEx’s latest earnings seem to suggest that the worst is over though. AmEx easily topped forecasts. As a result, analysts have been raising their estimates for 2016. Fourteen analysts in the last 30 days have raised their EPS expectations for AXP stock for the current quarter, while 19 have raised their full-year EPS estimates over the last month.

Yet, there’s one big wild card that investors have to keep an eye on.

Hotel chains Marriott International Inc (MAR) and Starwood Hotels & Resorts Worldwide Inc (HOT)  have agreed to merge. And it’s unclear what that will mean for American Express — which issues a preferred guest credit card for Starwood customers. Marriott has a deal with JPMorgan Chase (JPM) and Visa for its rewards card. Losing yet another big deal (JetBlue (JBLU) dumped AmEx last year too) would be bad news for AmEx…and by extension, AXP stock.

But that may be priced in to AXP stock already, which is trading at just 11.8 times 2016 earnings forecasts. AmEx is also still a favorite of Warren Buffett. Berkshire Hathaway (BRK.A, BRK.B) is the firm’s largest shareholder, with a nearly 16% stake.

AmEx customers are also spending more. The company’s billed business worldwide increased by more than 3% in the first quarter. That’s an encouraging sign given that investors have been worried about a consumer spending slowdown.

So it looks like AXP stock may have finally hit rock bottom.

As of this writing, Paul R. La Monica did not hold a position in any of the aforementioned securities.

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