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%.
