The 1 Stock I'd Buy Before American Express Right Now

American Express (NYSE: AXP) is up 160.4% successful the past 5 years compared to a 73.7% summation successful the S&P 500 (SNPINDEX: ^GSPC).

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American Express remains a coagulated buy, but Visa (NYSE: V) is adjacent much compelling.

Visa is simply a pure-play outgo processor that isn't liable for the recognition hazard of the cards connected its network. Rather, it partners with fiscal services companies and banks.

For example, JPMorgan Chase (NYSE: JPM) issues and bears the recognition hazard of the fashionable Chase Sapphire cards, portion Visa's web connects merchants to Chase to o.k. transactions.

American Express is some the outgo processor and paper issuer -- making it an inherently riskier concern than Visa. But American Express has an exceptional way grounds of managing risk. Its cards person comparatively precocious yearly fees. And it attracts affluent customers with generous rewards programs. These rewards programs are expensive, and they are among the highest costs for American Express. By comparison, Visa doesn't person to interest astir those costs -- due to the fact that again, it isn't issuing the cards.

As a result, Visa is simply a capital-light, ultra-high-margin business. Expenses screen labor, cybersecurity, web management, and marketing. But it doesn't person to put a batch of superior to marque money, which is simply a large vantage compared to capital-intensive companies.

Because Visa has specified precocious margins and has historically generated accordant growth, it has commanded a higher valuation than American Express. But American Express has outperformed the S&P 500 for 5 consecutive years, whereas Visa is down 11.2% implicit the past year.

Visa is presently trading astatine a discount to its five-year median price-to-earnings (P/E) and price-to-free-cash-flow (FCF) ratios, portion American Express is trading astatine a premium.

Visa, Mastercard (NYSE: MA), and American Express are down betwixt 8.8% and 10.4% twelvemonth to date, adjacent though the S&P 500 is astir flat. Consumer spending concerns and a projected 10% headdress connected recognition paper involvement rates whitethorn beryllium spooking immoderate investors.

The 10% headdress concerns are arguably overblown due to the fact that if that were to spell into effect, lenders would bounds recognition entree for consumers with little recognition scores -- which could pb to accrued usage of payday loans and different higher-interest options.