1 Top Stocks to Buy After 2024

I don’t think anything can stop it american express (AXP -0.24%) From delivering solid growth to shareholders, not an uncertain economy, stressed consumers, tough year-ago comparisons or even a shaky October. In fact, management recently reiterated a view it first provided in January for revenue growth of 15% to 17% year-over-year in 2023. Moreover, Amex continues to adhere to its aggressive long-term goal of 10% average annual revenue growth. After 2024, earnings per share growth will be in the mid-teens.

This strong business momentum, combined with the stock’s cheap valuation, makes American Express one of the best investment ideas for 2024 and beyond.

What’s behind the company’s incredible momentum? Let’s take a look at the task to find out.

Where is Amex’s growth coming from?

The strength of Amex’s business model comes down to its ability to grow revenue and profits in a variety of economic environments thanks to a variety of levers.

For example, consider how the payments company grew its total revenue by 16% year-over-year in the nine months ended September 30, even though its network size grew only 9% year-over-year. In fact, even though network volume slowed to 7% year-over-year growth in the third quarter, total revenue still grew by 13%.

How do companies solve this? Key to Amex’s third quarter growth was increased membership fee revenue (net card fee revenue increased 20% year-over-year) as new and existing customers increasingly chose cards with significant annual fees in exchange for membership benefits.

In addition to the diversity of Amex’s business, macroeconomic uncertainty is likely to accelerate net interest income during periods of lower spending by the company’s card members. This is because revolving loan balances typically increase during economic downturns.

To that end, Amex’s net interest income increased 34% year-over-year in the third quarter to $3.4 billion, accounting for 22% of total revenue. Therefore, this aspect of Amex’s business will give the company leverage in a more challenging economic environment.

Looking specifically at profits, American Express benefits from faster sales volume growth during boom times. But even in tough times, there are levers you can pull.

For example, in a difficult economic environment, Amex’s earnings are boosted by lower credit card rewards utilization rates as customers spend less on travel and ultimately use fewer travel benefits. Likewise, the company’s earnings may benefit from faster top-line growth during good times when it is easier to attract more high-quality card members. However, Amex may be able to offset some of the negative revenue impact from slowing sales growth during difficult times by reducing cardholder acquisition marketing spending by focusing spending on a small subset of high-quality credit profiles.

The point is that it’s not really surprising that American Express continues to grow nicely. It is also a testament to the resilience of the model. Of course, revenues and earnings will likely take a hit and could potentially turn negative during a severe recession. However, thanks to its resilient, agile and highly profitable operations, there is sound reasoning behind management’s aggressive long-term goals.

Fortunately, the stock’s conservative valuation of about 15 times future earnings appears to already be pricing in a recession. And as American Express CEO Stephen Squeri often reminds investors, every recession is followed by a recovery. With that in mind, the stock’s low forward price-to-earnings ratio may already take into account its anticipated problems.

Timely updates from management

Notably, Amex executives provided a timely update to investors earlier this month. Goldman Sachs 2023 American Financial Services Conference. Management’s message was clear. Everything seems to be going well for us to finish the year successfully. Squeri reiterated that the company expects total sales growth of 15 to 17 percent this year. And that view comes despite October being “a bit volatile” when it comes to claims growth.

Squeri’s optimism about the company’s full-year 2023 performance was fueled by a rebound in November and “very strong” shopping trends among consumers between Thanksgiving and Cyber ​​Monday, the CEO explained at the conference. Moreover, Squeri said the company expects to be able to deliver revenue growth of about 10% per year on average beyond 2024, and more importantly, earnings-per-share growth in the mid-teens.

Whatever the economic situation, the company’s resilience in 2023 and management’s confidence in 2024 show that American Express is likely to perform very well over the long term. This is especially true in the context of the stock’s very conservative valuation.