American Express Stock: Value Investing Wins Again

Between American Express, Visa, and Mastercard, there is no doubt that American Express has the worst growth characteristics of the three. Visa has been busy penetrating the European markets to keep its trajectory of 13% annual growth in line, and Mastercard stays a close second with its trajectory of 10-12% earnings growth. Both of these credit-oriented corporations are likely to have long-term earnings growth that is doubled what you will see from the S&P 500.

And then there is American Express. For the next five years, it is only expected to grow earnings in the 5-7% range. Its growth is not nearly as attractive as Visa and Mastercard.

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Index Funds and ExxonMobil Stock

I have previously shared with you my view that the increasing prevalence of index funds creates some market distortions because investors perpetually buy stocks based on market-cap weights rather than fundamentals. When a business owner sells his $10 million business and puts $6 million into the S&P 500 Index, he is placing a buy order for $180,000 worth of ExxonMobil stock automatically. It’s the nature of the programming behind the index. Exxon is the second-largest business domiciled in the United States based on market cap, and all buy orders reflect the fact that Exxon Mobil’s market cap of $300+ billion is about 3% of the $15+ trillion stock market index.

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A Microcosm Of The Stock Market Right Now

Just last night, I was reading through the annual report at Waste Management (WM). It is the definition of a stable cash generator. You can lump it alongside utilities and consumer non-cyclicals as “best type of stock to hold during a recession.” I personally like it because trash is a self-evidently unsexy business, and the executive culture at such businesses tends to be light on stock bonuses, general dilution, overhyped acquisitions, and other largesse that tends to attach to billion-dollar enterprises.

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Amazon’s $40 Stock Price Fall Justified

Amazon (AMZN) is one of the top five companies to come into existence during my lifetime. When we look back on the top storylines of the 1990s through 2010s, the growth of Amazon and its role in making e-commerce socially acceptable will be one of the storylines when we review the tale of our civilization decades from now.

But for the past few years, the problem has always been that Amazon’s valuation was so completely obscene that even highly optimistic expectations could still eventually translate into mediocre returns. Because stocks have valuations, you find yourself getting interested in things like Viacom, BP, and IBM even though you know other publicly traded corporations have higher growth rates.

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