In fact, the “American Express” name is one of the most valuable parts of the company. This won’t go away as a bear market approaches. Market-research firm Interbrand estimates that the American Express brand name was the 24th-ranked brand in the world in 2018, worth $19 billion – or about 20% of its current market capitalization. Brand value encapsulates a variety of fuzzy, hard-to-value qualities – a company’s reputation, competitive moat, loyal customer base, and so on. These are the characteristics that Warren Buffett lumps together under the umbrella of economic goodwill. Don’t confuse that with the “goodwill” you might find on a company’s balance sheet, though. Accountants derive “accounting goodwill” based on how much a company American Express growing through good times and bad. We trust the company, and we’ll keep using its cards to fund our purchases year after year. Note that even in the Great Recession of 2008, American Express still grew its card spending volume by 5% that year. Expect to see more robust growth in the future, as electronic payments continue to gain share over cash and check transactions over time. And even before that future growth, American Express is already a great company with impressive financials. Analysts expect it to generate $43.5 billion in revenue this year. That’s $4 billion MORE than Visa and pays for the businesses it acquires. It’s economic goodwill that will keep
I’ve gathered three of my favorite “forever” stocks:
Forever Stock No. 1 AMERICAN EXPRESS (NYSE: AXP) Let’s go back to August 1914, when American Express earned a tremendous amount of economic goodwill... As Europe hurtled into World War I, some 150,000 American tourists were stranded and unable to get cash to go home. But word began to spread that American Express was still cashing checks and even honoring “letters of credit” from U.S. banks. The company wasn’t a bank... But it had cash and a presence in every major city in Europe. Ultimately, nearly all the 150,000 tourists ended up getting home safely. And many of them remained grateful to American Express for the role it played in their escape. Today, we know American Express as a $100 billion credit-card colossus. About 115 million American Express cards are in use around the world, with cardholders racking up more than $1 trillion in charges every single year. “AmEx” also collects nearly $3 billion per year in “annual dues” from its customers simply for the right to carry the card. But its reputation for safety and reliability remains American Express’ most valuable asset.
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July 2019
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