To The Moon

Last week, the 13F filings stirred up significant attention with Warren Buffett’s recent stock trades.

Before the filings were released, it was known that Buffett had significantly reduced his stake in $Apple(AAPL)$ , dropping from nearly half of $Berkshire Hathaway(BRK.B)$ $Berkshire Hathaway(BRK.A)$ 's portfolio to 29%.

Despite this, Apple remains Berkshire's largest holding, and the reduction doesn't reflect a lack of confidence. Buffett recently included Apple on his list of stocks he will never sell.

At the same time, Buffett also cut his stake in another favorite, $Bank of America(BAC)$ , which is now the third-largest holding in his portfolio. This has made $American Express(AXP)$ his second-largest holding. Buffett also bought shares in $Heico(HEI)$ and $ulta beauty(ULTA)$ and adjusted his positions in several other stocks.

Why does Buffett love American Express?

American Express is a classic Buffett stock and often receives his praise. Buffett has stated that he will never sell two stocks: $Coca-Cola(KO)$ and American Express.

From Buffett's investment wisdom, it’s clear he looks for great companies, not just good stocks. In his view, a great company is one that can generate consistent profits and grow steadily, which should also drive up the stock price in the long run. It should have a sustainable competitive advantage and an excellent management team.

American Express fits this model. This mature company has a targeted market, strict credit management, and a rewards program. Recently, it has successfully attracted younger customers, boosting new memberships and potentially ensuring growth for decades. The management expects revenue to rise by about 10% this year, with a significant increase in earnings per share.

Buffett praises American Express's global brand as its competitive moat. He often highlights companies that are integral to the American story, and American Express plays a crucial role in the U.S. economy.

Unlike typical banks, American Express operates a closed-loop system, meaning it has its own lending operations, unlike competitors $Visa(V)$ and $MasterCard(MA)$ . Buffett likes banks for their cash reserves, which offer flexibility and opportunities, and for their role in driving spending and economic growth.

Buffett and the late Charlie Munger always looked for four key elements in investments: a comprehensible business, solid long-term economics, trustworthy management, and a reasonable price.

American Express meets all these criteria. The company also creates shareholder value through dividend hikes and stock buybacks. For a value investor like Buffett, a reasonable valuation is crucial: American Express’s P/E ratio is 19, well below the S&P 500 average of 27.

In short, this Buffett favorite offers stable growth, low valuation, and dividend growth.