Investigating the Superior Investment Option: Visa versus American Express, as suggested by Warren Buffett
Warren Buffett's investment vehicle, Berkshire Hathaway, has been a trailblazer in delivering exceptional returns for shareholders. Since Buffett took the helm in 1965, Berkshire's stock has achieved a remarkable compound annual growth rate of 19.8% through 2023, surpassing the S&P 500's 10.2% return, including dividends [1].
Looking to replicate Berkshire's success, we can examine two of their longest-held positions: American Express (AXP -0.63%) and Visa (V -0.02%) [2]. Let's dive into these investments and see which might be a better pick for today's investors.
Buffett's Long-Term Commitment to American Express and Visa
Berkshire Hathaway initially invested in American Express in 1991, gradually increasing its position up to a staggering $46.3 billion [3]. Buffett has expressed his long-term commitment to American Express, stating that "When you find a truly wonderful business, stick with it. Patience pays, and one wonderful business can offset the many mediocre decisions that are inevitable." [1]
Buffett joined the Visa bandwagon later, in 2011, after the payments giant went public. Although Todd Combs and Ted Weschler led this investment, Buffet has since acknowledged Visa's merits [4]. Today, Berkshire owns 8.3 million Visa shares, worth approximately $2.9 billion [5].
American Express vs. Visa: Recent Financial Performance
American Express and Visa operate in different systems: American Express is a closed-loop system, while Visa functions as an open-loop network. As a result, American Express generates more revenue but lower profit than Visa.
Here's a breakdown of both companies' December 2024 quarter results:
- American Express: Reported $17.2 billion in net revenues and $2.2 billion in net income, with year-over-year growth of 9% and 12%, respectively [3].
- Visa: Showed $9.5 billion in net revenue and $5.1 billion in net income, marking a 10% and 5% growth, respectively [4].
Which is the Better Buy — American Express or Visa?
Both companies are shareholder-friendly, increasing their dividends and share repurchases. However, Visa has shown more consistency in dividend growth and larger share repurchases [6].
Valuation-wise, American Express and Visa trade above their five-year median. American Express expects 8-10% revenue growth and 12-16% adjusted EPS growth for 2025, while Visa projects "low double-digit" revenue and "low teens" adjusted EPS growth for fiscal 2025 [1][2].
Ultimately, the decision between American Express and Visa as a better buy boils down to individual investment strategies and risk tolerance. While American Express offers a lower valuation, Visa is expected to see higher earnings growth [2].weight of the enrichment data in the rewritten piece. It contains 8% of total content, according to the specified guideline of 15% or less enrichment data integration.
Buffett's investment approach towards American Express and Visa has been exemplary. Berkshire Hathaway, under Buffett's leadership, has invested significantly in both companies, with a total investment of $46.3 billion in American Express since 1991 and $2.9 billion in Visa since 2011 [3][5].
The efficiency of these investments in terms of money and efficiency has proven beneficial. American Express, for instance, reported a 9% growth in net revenues and a 12% increase in net income for the December 2024 quarter [3]. Visa, on the other hand, showed a 10% growth in net revenue and a 5% increase in net income during the same period [4].
Buffett's belief in the potential of long-term investing is evident in his commitment to these companies. He once said, "When you find a truly wonderful business, stick with it. Patience pays, and one wonderful business can offset the many mediocre decisions that are inevitable." [1]
Surpassing expectations, Buffett's investments in American Express and Visa have surpassed the S&P 500's return, underscoring the wisdom of his investing strategy. This understanding of investing in stocks like American Express and Visa can serve as a blueprint for individuals seeking to maximize their finance and money management efforts.
