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In just a few short weeks, the new presidential administration in the United States has upended global financial markets through an aggressive tariffing strategy against countries like China. As of this writing, the S&P 500 is in a 19% drawdown and close to triggering an official bear market.
Many stocks are much lower, such as American Express (NYSE: AXP). The credit card and banking giant is down 29% from highs, taking it on the chin in the last few weeks. While 2025 may be a tough year for almost every business if these tariffs persist, this short-term thinking from Wall Street is providing a valuable buying opportunity in American Express for investors who plan to hold for a decade or longer.
Here's why American Express is a stock I'd buy hand over fist in this market downturn.
High-quality brand and wealthy customer base
American Express is one of the largest credit card issuers in the United States, with an estimated 146.5 million cards in circulation at the end of 2024. Typically, credit card lenders are pro-cyclical, meaning they do well financially during the good times. However, in an economic recession, loss rates on loans can start to rise and sharply impact sector-level earnings. Investors are likely worried about a potential recession impacting the company's earnings in 2025.
Two characteristics make American Express different than other credit card lenders and perhaps misunderstood by Wall Street. First, most of its revenue does not come from net interest income on credit card loans. In 2024, 66% of American Express' revenue came from credit card swipe fees and fees charged to customers to use the cards. Unlike other credit card issuers, American Express has its own payments network similar to Visa and Mastercard, making its revenue more diversified.
Second, American Express caters to a more affluent and wealthier customer base that will do better than average during an economic downturn. In 2024, the average spending per card member was $25,000, with write-off rates on loans below 2% in Q4 of 2024. These are superb metrics compared to the competition, which should give American Express a leg up in a recession if one materializes.
Consistent capital returns program
One of the most underrated parts of a stock's return will come from management's ability to intelligently return capital to shareholders through share repurchases or dividends. American Express is one of the best in the world at consistently returning capital.
Over the last 10 years, the stock's dividend is up 110% with consistent year-over-year increases. It currently has a yield of just 1.26%, but this is a figure that should grow over the long term. However, share repurchases are where the bulk of capital returns are going. The company spent $5.4 billion on repurchases in 2024. Shares outstanding have fallen by 21% in the last 10 years, which helps boost the ownership stakes for remaining shareholders as well as dividend per share growth and earnings per share (EPS) growth.