This company just became Warren Buffett’s second largest stock holding. Is it a buy today?

Warren Buffett was making headlines for some of his recent trades even before his 13F filing last week, which detailed all Berkshire Hathawayhis transactions in the second quarter. But the latest filing with the Securities and Exchange Commission brought even more news, and not just about the stocks it bought and sold. One of his most beloved stocks has climbed to No. 2 in Berkshire Hathaway’s portfolio, and it’s a name Buffett watchers know well.

What happened in the second quarter

Even before the 13F was filed, investors already knew that Buffett had sold a piece of Berkshire’s main holding company. Apple. Apple remains the largest holding in the portfolio, but instead of representing almost half of its value, the tech giant now represents just under 29%. That’s still a huge percentage, and no one should think that Buffett has lost faith in Apple, which he recently added to the list of stocks he would never completely sell.

The other investors in the sale of shares that they already knew about was Bank of Americawhich is buffett’s favorite banking stock. It was previously the second largest position in the portfolio, but he reduced the size of the stock in Q2. It also opened new positions in Heiko and The ultimate beautyand bought and sold smaller amounts of shares from several of his existing positions.

However, after that sale of Bank of America stock, American Express (AXP 0.05%) — a position Buffett hasn’t reached in about 30 years — is now the second-largest holding.

Why Buffett likes it

American Express is a classic Buffett stock, and he often praises them. He has long said he would never sell American Express or his other favorite, Coca cola.

Buffett freely shares his investing wisdom and often talks about what he looks for in a stock. The first part of his formula is that he doesn’t look for great stocks — he looks for great businesses. According to his paradigm, a great company’s stock is likely to appreciate over time while the business grows steadily and profitably.

The next thing they look for are businesses with sustainable, long-term competitive advantages. American Express is an established company with a niche target market, rigorous credit management and a top rewards program.

It has always targeted a high-end, hard-wearing consumer demographic and in recent years has successfully pivoted to focus on a younger cohort, which is generating new members and should be a reliable growth engine for decades to come. . Management anticipates revenue growth of around 10% this year, with strong earnings per share growth, and targets similar long-term results.

Buffett cited American Express’ “worldwide” brand as a moat. He often talks about businesses that participate in the American story, and American Express plays an important role in the US economy.

Buffett also loves banking stocks. American Express isn’t a classic bank, but it operates using a closed-loop model, meaning it underwrites its own loans, unlike rival credit card networks. Visa and MasterCard. These are all Buffett stocks, for similar reasons, but he doesn’t talk about them the way he does about American Express. Banks have plenty of cash, which gives them flexibility and opportunity and stimulates spending and the economy.

He has long said that he, along with Charlie Munger, who died last year, look for four things in an investment: a business that is understandable, has favorable long-term economics, capable and reliable management, and a reasonable price.

American Express has the kind of business that Buffett understands, and its model leads to favorable long-term economics, which Berkshire Hathaway has proven over the decades that its stock has held. Capable and reliable management is how the company has been able to refresh itself to attract a new and different group of customers and increase revenues and increase profits despite periods of inflation and economic volatility.

He has also shown a commitment to creating value for shareholders through dividend increases and share buybacks — behaviors common to the companies in which Buffett invests.

Finally, American Express usually trades at a discount to S&P 500 average. Today, it trades at a price-to-earnings ratio of 19, while the S&P 500 average is 27.

Is American Express a good choice for you?

Buffett rarely ventures into past value stocks, and American Express is very much a value stock. So if you’re looking to add a high-growth stock to your portfolio now, the financial giant might not be the right fit. However, it has a reliable track record of growing sales and profits at a steady pace and has plenty of growth drivers to keep its business running smoothly.

As such, it is an excellent choice for value investors or any investor looking for an anchor stock to add to a diversified portfolio. You can expect more growth from American Express for the foreseeable future, as well as a growing dividend.