The market is bouncing back from earlier this year’s drop, maintaining its upward trend and hitting record levels. Known investment guru Warren Buffett has consistently voiced his stance on bull markets: He’s an investor who goes against the grain, choosing to purchase stocks when they are undervalued.
Despite the apparent high cost, Berkshire Hathaway, his holding company, currently has more cash reserves than before, largely invested in U.S. Treasury bills. Additionally, for ten consecutive quarters, it has been reducing its stock holdings.
Among the stocks he favors most, American Express (AXP) and Bank of America (BAC) appear to be smart investment choices at present. Here’s my reasoning behind this selection:
American Express (AXP): With a modest return of 0.22%, this financial services company has shown resilience in the face of economic challenges, demonstrating its strength and stability. Its focus on premium credit cards, travel services, and purchase finance solutions positions it well for long-term growth, particularly as travel picks up post-pandemic.
Bank of America (BAC): Despite a minor loss of 0.33%, Bank of America is an attractive investment opportunity due to its vast network and diverse range of financial products and services. Its strong presence in mortgage lending, retail banking, and wealth management makes it a key player in the industry. Moreover, its commitment to digital transformation and cost-cutting initiatives bode well for its future performance.
1. American Express: New members, same great model
Recently, Buffett quipped about his preference for established companies, citing American Express as an ideal illustration since it’s marking its 150th anniversary this year. This type of enduring significance and stability is what he appreciates in a stock. It ranks second in terms of how long he has invested in it, and it holds the second-largest position in his portfolio.
Over time, the company has evolved along with its client base and their shifting needs. Currently, it operates on a dual-faceted model offering banking services and credit cards, often referred to as a closed-loop system. The segments demonstrating the most rapid expansion are younger customers, which is expected to fuel the company’s growth in the near term.
This company, with its emphasis on serving a wealthy clientele and following major industry trends, has consistently shown impressive results in the financial sector. Even under conditions of inflation and broader economic strain, it has managed to maintain its strong performance.
In simple terms, excluding any effects from a leap year, our revenue grew by about 9% compared to the same time last year (taking into account all currencies equally), and card spending increased by 7%. The management forecasts that our total revenue will rise between 8% and 10% throughout the entire year of 2025.
A notable aspect of the company’s structure is the yearly charges associated with its products. While such fees aren’t unique to American Express and not every card carries them, they are a significant component of their model, which boasts an outstanding rewards program for its primarily fee-bearing credit cards.
The fees serve as an incentive for using the rewards program and contribute significantly to the company’s earnings. In the initial quarter, fee income grew by 18% compared to the previous year and represented 13% of the overall net income.
The company’s strong performance under stressful conditions significantly contributed to its impressive growth over the last year, with gains nearly triple those of the S&P 500 (30% versus 11%). Additionally, it currently provides a dividend of 1%. Given its combination of value, growing dividends, and long-term reliability, American Express is an outstanding pick for investors.
2. Bank of America: The classic bank stock
Bank of America (often referred to as BofA) ranks as the second-biggest bank in the United States based on its assets. Interestingly, Warren Buffett rarely mentions it explicitly, but certain characteristics he frequently discusses align well with BofA’s business approach.
This bank stands out as a significant player in the economy, with a focus primarily on consumers. It has demonstrated resilience under expert leadership during difficult periods. As a stock investment, it offers competitive pricing compared to other banks and provides an appealing dividend return. Notably, Bank of America holds the third-largest position in Berkshire Hathaway’s portfolio, having been displaced from second place following Buffett’s sale of some shares last year.
Despite primarily focusing on consumers, Bank of America has thrived in its institutional sector and shown resilience as interest rates climbed. Now, with interest rates decreasing, the bank appears to be in an even stronger position.
During the initial three months, our revenue grew by 6% to reach an impressive $27.4 billion, while earnings per share (EPS) surged by a significant 18% to hit $0.90. Furthermore, we managed to open 250,000 new checking accounts, marking the 25th consecutive quarter of growth, and added an additional one million credit card accounts as well.
The institution boasts a robust digital strategy that continues to draw in fresh clients, despite its status as a titan in banking. Deposits have seen consistent growth for seven quarters running, with the figure nearing $2 trillion since hitting a low in 2023.
In terms of international banking, it continues to hold the third position in investment banking, and there’s been a 12% growth in deposits compared to the previous year.
Speaking as an enthusiast, I find Bank of America to be an appealing value pick with growth potential! Its price-to-book ratio of 1.3 positions it lower than other banks in the same league, making it a relative bargain. To top it off, its dividend currently yields a steady 2.2% return. This bank stands out as a strong addition for those seeking stability and reliability to bolster their diversified portfolio.
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2025-07-17 15:46