The best Warren Buffett stock invests $500 now

After an incredible 65 years of journey, Berkshire Hathaway CEO Warren Buffett announced that he will resign. Under his leadership, Berkshire provides investors with excellent returns and becomes a source of investment ideas. Buffett's investment principles and those of his respected partner, the late Charlie Munger, have been key to Berkshire's outstanding 20% ​​compound annual returns since 1965.

One of the crown jewelry in Berkshire's public equity portfolio is American Express (NYSE: AXP). This iconic credit card brand is synonymous with luxury goods, making it a favorite among consumers. American Express is now trading below its 52-week high of 15%, offering today's investors a compelling buying opportunity.

American Express is a smaller player when it comes to payment environments visa and MasterCard. To see through the events, American Express handled $1.7 trillion in credit card purchases, or 9% of global purchases in 2023. This figure is dwarfed by the impressive total of competitors: Visa stocks rose $6.3 trillion (33%), while Mastercard fell behind with $4 trillion (21% stake).

Unlike MasterCard, which is Visa and MasterCard (which cooperates with banks to issue cards and manage credit risks), American Express plays both roles. It operates a closed-loop payment system, which means it processes transactions and also manages its credit that it expands to customers. This dual role enables it to maintain a direct relationship with the user.

Despite its smaller size, American Express carves a niche by focusing on wealthy consumers. Since the launch of the first charge card in 1958, the company has prioritized attracting high-consumption customers who often have low default rates. This strategy not only helps to build a stable source of income, but also provides resilience during a downturn.

Warren Buffett agrees that the American Express brand is one of its strongest selling points. When American Express CEO Stephen Squeri took over the best role in 2018, Buffett told him: “The most important thing about American Express is the desire for brands and customers that are relevant to the brand.”

American Express faces fierce competition, and the consumer lending sector is vulnerable to economic volatility, making it a cyclical inventory.

Given the uncertainty of current tariffs, an increase in cost of consumer goods may affect consumer spending. If the economy slows down or consumer spending is greatly reduced, American Express may see a drop in transaction volume, thereby earning revenue.

Another thing to consider is that American Express expands its loans to consumers. If more people start to default on these loans, the company may need to increase its reserves to cover these potential losses. This reliance on consumer loans is why American Express has a lower P/E ratio compared to its competitors, visas and Mastercard.

Paying credit card by one person in the outdoor cafe.
Image source: Getty Images.

In the first quarter, the company reported a network volume of $439.6 billion, a 5% increase from the previous year. Additionally, as interest rates rose over the past few years, American Express benefited from consumer loans through higher net interest income, with net interest income increasing by 11% to $4.2 billion during the same period.

In addition, the company's credit quality is still relatively stable. At the end of the first quarter, 1.3% of its card loans and accounts receivable were due more than 30 days, with net sales of 2.4%. Both indicators have remained stable over the past year, indicating that consumers continue to maintain good shape.

American Express is a strong country in the financial sector, with a strong brand and impressive performance metrics. The recent decline in stock prices has created opportunities for investors. The stock's P/E ratio dropped from 23.2 to 19.3 and I used the recent sell-off to add the stock to my portfolio.

Legendary investor Warren Buffett has long believed in American Express, and I believe it is a great stock for investors to add some stocks today. If later this year, when we are in uncertain times and the market falls further, investors should be ready to buy more stocks of this excellent blue chip stock.

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American Express is an advertising partner for Motley Fool Money. Courtney Carlsen holds positions at American Express and Berkshire Hathaway. Motley fool has a place and recommends Berkshire Hathaway, MasterCard and Visa. Motley Fool has a disclosure policy.

Currently, the best Warren Buffett stock was originally published by Motley Fool