Now that the new earnings season has kicked off, the financial sector comes out swinging first, giving investors insights into what is happening underneath the hood of the economy, both the corporate and the commercial economy. This week, commercial banks like Bank of America Co. (NYSE: BAC) and J.P. Morgan Chase & Co. (NYSE: JPM) reported a not-so-shiny future in the consumer sector.

Rising credit card delinquencies, coupled with net charge-offs (accounts that are considered lost), encouraged management at these banks to put more capital away in case of further losses in the quarters to come. Investors can see that the banks are preparing themselves for another round of deterioration in consumer credit conditions. Still, there’s one way to hedge these risks away and also be exposed to what could be considered a consumer staple stock.

That stock is American Express (NYSE: AXP), which has just reported its second quarter 2024 earnings results to hold up the stock’s price in the middle of what could be this cycle’s biggest rotation out of the technology sector, mainly out of NVIDIA Co. (NASDAQ: NVDA) and into other areas like bonds and small-cap stocks. Here’s why American Express stock should be on more investor watchlists.

American Express Stock Flips the Script for Credit Sector

That’s a bold assessment, but it couldn’t be more true today. While the bigger commercial banks see their net interest income (NII) fall to burden earnings per share (EPS) on a stock, American Express will show investors a different story and allow them to tap into the better earning power in this household name.

According to the company’s earnings presentation for the second quarter of 2024, NII in American Express jumped by 20% over the year, beating the single-digit declines in the big banks.

This is important because, while most consumers are being choked by inflation and forced to miss their card payments, American Express’s customer profile shows that quality rather than quantity matters.

NII and other revenue growth at American Express drove the bottom-line earnings higher, pushing EPS growth of 44% in the past year. Watching Wall Street forecasts for only 14.8% EPS growth in the next 12 months makes it seem like analysts are falling on the conservative end of the spectrum.

Management leaned on this recent financial performance to provide even better guidance. Insiders feel that American Express can deliver EPS growth of 19% to 23% for the rest of the year, putting pressure on analysts to revise and boost their views.

Why Warren Buffett Owns American Express Stock and Plans to Keep It

Now, let's discuss why many investors, including Warren Buffett, continue to hold American Express stock. While the big banks see their charge-off and delinquency levels rise above pre-COVID levels today, American Express notes that both of these metrics are still below pre-COVID levels, meaning the business is better now than before the pandemic.

With this stability comes predictability, and that’s good for the company’s management, especially when the subject of reinvesting capital comes up. Management achieved this with up to $22.8 billion of free cash flow (operating cash flows minus capital expenditures) for the past 12 months.

First, it gave back up to $7 million in capital to investors through share buybacks, which delivered a message to the rest of the market. Part of this message is that insiders themselves may believe the stock to be on the cheap end today and that the near future could be filled with upside potential.

Over the past five years, American Express stock has repurchased an average of $3.5 billion worth of stock, which is one of the main strategies cash-flowing companies use to reward their shareholders once they reach these levels of stability and predictability in their cash flows.

This is also why Wall Street keeps being bullish on American Express stock. Analysts at Wells Fargo saw it fit to boost their price targets on American Express stock to $285 a share, daring it to rally by 19.2% from where it trades today.

Proposing these sorts of upsides and the stock delivering such a solid financial stance in the middle of one of the worst consumer credit markets had another impact on the market. American Express stock’s short interest collapsed by 10.4% in the past month, showing capitulation on the side of the bearish traders eyeing American Express.

That would explain why up to $9.8 billion of institutional capital was invested in American Express stock over the past 12 months, as the company is an easy target for these investors.