Key Points
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American Express cardholders are showing no signs of a spending slowdown.
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The credit quality of American Express’s card balances is excellent.
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Relentless stock buybacks and dividends provide an incentive for patient investors to hold American Express stock.
- 10 stocks we like better than American Express ›
With just 30 components, the Dow Jones Industrial Average (DJINDICES: ^DJI) effectively acts as a representation of the broader stock market. Each seat in the Dow Jones is reserved for an industry-leading company that reflects a portion of the U.S. economy. But 71% of the index’s weight is allocated to its 15 largest components.
These companies aren’t necessarily the most valuable, as the Dow is price-weighted — meaning components are weighted by their stock prices regardless of their total market capitalization (market cap). Whereas indexes like the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC) are weighted by market cap, where the most valuable companies like Nvidia and Apple carry the most weight.
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Out of the 15 largest Dow components, my top pick to buy now is American Express (NYSE: AXP). Here’s why.
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American Express is generating high-quality earnings growth
American Express fell 3.7% on Oct. 23 in response to its third-quarter 2026 results. American Express is now down 15.3% year-to-date — heavily underperforming Visa (NYSE: V) and Mastercard (NYSE: MA), which are both hovering around all-time highs. I think the sell-off is a no-brainer buying opportunity.
American Express raised its full-year earnings per share guidance to a new range of $18.30 to $18.60 or $17.60 to $17.90 on an adjusted basis. It’s also on track to grow revenue by double digits for yet another year.
The advantages of American Express’s closed-loop network were on full display in its latest quarter. Unlike Visa and Mastercard, which work with banks and financial institutions to issue cards and manage credit risk, American Express issues its own cards to consumers, businesses, and international clients. It also offers other banking services, like loans and savings accounts. This control makes American Express a hybrid between a payment processor and a financial services company.
While Visa and Mastercard make the vast majority of their revenue from transaction volume and frequency, American Express generates revenue from four primary sources — discount revenue (swipe fees), net interest income (interest on card and loans balances minus the interest it pays), net card fees (membership fees on cards), and service fees and other revenue.
In its latest quarter, American Express’s discount revenue grew 8% and made up roughly half of revenues net of interest expenses. But net interest income grew 10%, and net card fees grew a whopping 16% — largely thanks to higher annual fees on the Platinum Card.
Net write-offs are just 1.8%
Since American Express is on the hook for its customers’ credit risk, it’s important to monitor the company’s credit metrics. The two most important are the percentage of customers 30 days plus past due, which was 1.2% of card balances in Q3 2026 compared to 1.3% in Q3 2025, and the net write-off rate, which was 1.8% of average card balances in Q3 2026 compared to 1.9% in Q3 2025.
As the name implies, the net write-off rate is the amount of outstanding loans American Express writes off as uncollectible, minus the debt it recovers. A net write-off rate under 2% is extremely healthy. According to second-quarter 2026 data from the Federal Reserve Bank of St. Louis, the average charge-off rate (another term for the write-off rate) for all U.S. commercial banks was 3.9%.
Having a low net write-off rate means that American Express is issuing high-quality debt to customers who are paying it off rather than making bad loans. This is especially important, given that interest collected on debt is a significant revenue driver for the financial stock.
Aggressive buybacks make American Express an even better value
American Express’s loyal customer base, double-digit revenue and earnings growth, and quality loans give it one of the best business models in the financial services industry. Since American Express generates such steady cash flows, it can consistently grow its dividends and rapidly reduce its share count through buybacks.
American Express’s diluted shares outstanding declined by 3% year-over-year, which is an incredibly rapid rate of stock buybacks. Accelerated buybacks are especially impactful given the decline in American Express’s stock price.
American Express is a better buy than Visa and Mastercard
American Express’s falling stock price paired with dividends has pushed its yield up to 1.2%, which is above Visa’s 0.7% yield and Mastercard’s 0.6% yield. Based on the share price at the time of this writing, American Express is trading at just 17.6 times the midpoint of its adjusted 2026 earnings guidance of $17.75 per share.
For context, analyst consensus estimates have Visa producing $13.23 in 2026 earnings per share and Mastercard generating $19.56 per share — meaning Visa is trading at 30.8 times that earnings forecast while Mastercard trades at 31.9 times.
Given their high margins and low operating costs, Visa and Mastercard tend to command premium valuations over American Express. But the disparity has reached an inflection point not seen for years, showcasing just how good a value American Express stock is right now.
Should you buy stock in American Express right now?
Before you buy stock in American Express, consider this:
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American Express is an advertising partner of Motley Fool Money. Daniel Foelber has positions in American Express and Nvidia. The Motley Fool has positions in and recommends American Express, Apple, Mastercard, Nvidia, and Visa. The Motley Fool has a disclosure policy.
