American Express Company (NYSE:AXP) has had a pretty good run in the past year. It has outperformed the S&P 500 by more than 50% over that time.
With earnings coming out at the end of the trading day today, it’s likely that the good times will keep running. It is the first of the major credit card companies to report, but they’ll all be following Amex’s lead this week.
Credit card companies are basically a leveraged bet on the financial strength of an economic recovery. When times are good, there is money flowing through the system, wages are rising, consumers are spending and businesses are booking orders.
Since Amex leverages the benefits of growing spending, this is an ideal market. But when that trend starts to fizzle, AXP has more of a challenge. Then it’s a matter of how well it’s positioned to get through the tough times when margins get tighter and business gets thinner.
AXP was started 168 years ago in New York, so it has been through a few rough patches over the years.
It was actually the birthplace of Wells Fargo & Co (NYSE:WFC). Both Messrs. Wells and Fargo both sat on the Amex board and along with other directors wanted to move Amex into California. Founder John Butterfield wasn’t interested.
Amex was the 1850s equivalent of FedEx Corporation (NYSE:FDX) in New York state, dominating the express delivery business. As the nation grew, so did its express delivery business, even linking up with WFC as it grew across the country.
But it didn’t stop at U.S. borders. By the latter half of the 20th Century, Amex was a key spot in more than 130 countries for U.S. travelers.
And now, it is finding its way through the new digital marketplace. Now there are more competitors for charge card services and its prestige is no longer as exclusive or desirable as it once was.
One of the biggest challenges Amex ran into in the 21st Century was its premium to both customers and retailers. Amex always charged more than it competitors and because of this, smaller shops didn’t support AXP services since margins were razor thin to begin with.
The most recent example was the loss of its exclusive contract with Costco Wholesale Corporation (NASDAQ:COST) because it charged Costco more in fees than Visa Inc (NYSE:V) did.
It finally has learned its lesson. And it also understands that what used to work doesn’t any longer. It’s expanding its line of credit cards and trying to lure smaller businesses into the fold.
AXP beat on its most recent earnings. From what the technicals are saying, most investors a bullish. But even a miss probably wouldn’t have killed the trajectory of American Express stock or most of the credit card companies as a whole.
The advantage with AXP is it knows how to succeed for the long haul.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
