American Express Company (AXP)

AMEX's stock has declined almost 8% since my blog post, but I'm not selling. In fact, I'm looking to add to my position. I advise you to look at my blog post here:

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=59934&t=01001757624174054375

Here are the highlights, IMO:

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The Express Ticket To Weathering The Financial Storm (Present & Future)

American Express (AXP) currently $45, 2010 Target price = $65 (44% discount). There are only three financials I am touching with a 10ft. pole: Goldman Sachs, Visa, and American Express. Okay, Visa is not really a financial. Regardless, people are expecting the entire financial sector to “turn around” in a blink of an eye, but it’s not going to happen. There are a few good reasons, but most importantly, their business models are changing. As a result of the “credit crisis / sub-prime mortgage / exotic derivative business I cannot even fathom” fallout, the rules of the game have changed. How can I accurately value stock in a company that does not even know what it is carrying on their own balance sheet? Investing under those conditions is called speculation, and it’s not for me. I tend to agree with Charlie Munger when he said, “All intelligent investing is value investing.” [1] And value investing is what I’m doing buying American Express...

Warren Buffett said this of Amex’s CEO in his 2006 Letter to Shareholders: “There are many giant company managers whom I greatly admire, Ken Chenault of American Express…quickly comes to mind”. [2] (All of his Letters to Shareholders can be found at www.berkshirehathaway.com.) Buffett knows Amex, having held it in his portfolio for decades. American Express accounts for almost 10% of Berkshire Hathaway’s investment portfolio. Sure, management has missteped in the past (Chenault was paid $31M in 2001 after a horrible year), but I think Amex’s board of directors have gotten executive pay right this time around. Please read this article if you are remotely interested in an Amex position...

American Express’s business model will not fail in the long run. Amex runs a “toll keeper” model, collecting activity based fees on reoccurring transactions. Amex does not have the largest payment network (Visa does), but its pricing power, high barriers to entry, wide moat, and high switching costs yield a constant stream of earnings...

Amex is known and respected here in the United States, and its presence internationally is growing fast. American Express ranked 15th on the list of BusinessWeek’s World’s Most Valuable Brands in 2007 with an estimated value of $20B. [4]That is over 1/3 of its current total market value...

Conservatively, I think we will see a double in American Express in 5 years. Some can’t wait that long. I think in 2010, Amex will trade between $60 - $65. This conservative estimate is based on earnings per share of $4.25. That offers purchases today at $45, a 40 – 45% discount. That sounds good enough for me to begin a CAPS outperform, and to increase my personal portfolio’s American Express position.

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Head over to my blog for the full read. Let me know if you agree, disagree, or have a point to add that I've overlooked. Have fun, and use American Express at your local checkout counter!