5 Reasons to Buy American Express Stock Like There's No Tomorrow (2025)

Leo Sun, The Motley Fool

Sat, Apr 5, 2025, 1:40 AM 5 min read

The S&P 500 has declined about 6.7% since the beginning of the year (as of this writing) as fears of higher tariffs, stubborn inflation, and fewer interest rate cuts drove away the bulls. In this uncertain market, it might be tempting to simply park your cash in some CDs and T-bills.

That caution is warranted, but investors who shun stocks right now could miss some promising long-term opportunities. One of those stocks is American Express (NYSE: AXP), which still looks like a screaming buy for five simple reasons.

American Express is often compared to Visa and Mastercard, but it operates a different business model. Visa and Mastercard don't issue any cards of their own -- they only partner with other banks and financial institutions, which issue co-branded cards and handle all the accounts and debt. Therefore, Visa and Mastercard only generate revenue by charging merchants "swipe fees" for each transaction processed through their global card-processing networks.

American Express is both a card-issuing bank and a payment processor, so it shoulders all the risk of the cards it issues. That might seem a lot riskier than Visa and Mastercard's hands-off approach, but it drives American Express to only issue its cards to lower-risk customers with higher income levels and healthy credit scores.

At the end of 2024, only 0.8% of American Express' consumer and small business loans were delinquent by more than 30 days, compared to a ratio of 1% at the end of 2023. Its total provisions for credit losses only rose 5% to $5.2 billion, or 8% of its total revenue (net of interest expense), in 2024. In other words, it's not exposed to too much credit risk.

2. American Express is resistant to interest rate swings

American Express is well-insulated from interest rate swings. Declining interest rates reduce its banking segment's net interest income, but they'll generate tailwinds for consumer spending and boost its credit card segment's swipe fees. Meanwhile, rising interest rates might soften its credit card business but strengthen its banking business.

That flexibility makes American Express a more balanced investment than payment processors like Visa and Mastercard, or traditional banks. That might be why its stock rallied 45% over the past three years as the S&P 500 only advanced 24%.

From 2019 to 2024, American Express' revenue and earnings per share (EPS) grew at a compound annual growth rates (CAGRs) of 10% and 12%, respectively. From 2024 to 2027, analysts expect its revenue and EPS to grow at CAGRs of 8% and 13%, respectively.