Key Points

  • American Express stands out in Berkshire Hathaway's concentrated portfolio because of its premium customer base.

  • The company is attracting younger affluent consumers, with millennials and Gen Z now making up most new accounts.

  • While the stock isn't cheap, Amex's strong moat, pricing power, and loyal customers make it a compelling investment.

  • 10 stocks we like better than American Express ›

Warren Buffett spent decades preaching that a handful of great businesses beats a basket of mediocre ones, and his successor is running the same play. Under new CEO Greg Abel, Berkshire Hathaway has slimmed its stock portfolio down to fewer names, and roughly 68% of it now sits in just five companies.

Those five are Apple, American Express (NYSE: AXP), Coca-Cola, Bank of America, and Chevron. Each is a wonderful business, but one stands out to me above the rest.

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Concentration is the point, not a flaw

Before getting to my pick, it is worth appreciating why Berkshire bets so big on so few stocks. Abel has trimmed the portfolio to under 30 holdings and spotlighted a short list of core positions, every one a company with a wide competitive moat and durable earnings. To a newer investor, putting most of your money in five stocks might look reckless.

To Buffett and Abel, spreading money thin across dozens of so-so businesses is the real risk. They would rather own a lot of a few things they understand deeply. That philosophy is exactly why the names at the top of this list are worth studying.

My favorite of the bunch: American Express

Apple is the biggest holding, but American Express is the one I would happily own. What makes it special is that it is not really a credit card company in the way most people think. It runs a closed-loop network, meaning it issues the cards, processes the payments, and serves the merchants all at once, so it earns a fee on nearly every dollar its customers spend. That fee-based, spend-centric model is far steadier than a typical lender that lives or dies on interest and loan losses.

Even better is who is doing the spending. American Express caters to affluent, loyal customers, and it has been aggressively courting the next generation of them. Its recent Platinum card overhaul -- the largest in its history -- has been a hit, and the company added millions of new cards, with the vast majority signing up for fee-charging products.

Most striking to me, millennials and Gen Z now make up around 65% of its new consumer accounts globally and account for a rising share of total spending. The strategy is patient and smart: Win young, high-earning customers early with perks that speak to them, like dining reservations through Resy and Tock and a quarterly credit at Lululemon Athletica, then grow alongside them as their incomes and needs expand over decades.

Why the moat is so hard to attack

The beauty of this setup is how it compounds. Premium customers spend more, making Amex's network more valuable to merchants, which in turn funds richer rewards, which attract more premium customers. Because those cardholders pay annual fees and tend to spend rather than carry risky balances, Amex generates reliable, high-quality revenue while taking on less credit danger than many banks. That is the kind of self-reinforcing advantage Buffett prized, and it is why American Express has been a Berkshire holding for more than three decades. It is a business built to keep raising prices while keeping customers happy, a rare combination.

No stock is bulletproof. American Express is tied to consumer spending, so a sharp recession would slow its growth and could lift loan losses, even among wealthier customers. It faces constant competition from other card networks and fintech upstarts chasing the same young spenders. And after a strong run, the stock is no longer the bargain it once was, so patient investors may want to buy gradually rather than all at once.

Greg Abel's concentrated Berkshire portfolio is a master class in owning quality over quantity, and American Express embodies what makes these businesses special: a wide moat, pricing power, and a loyal customer base that is getting younger, not older. Of the five stocks that make up most of Berkshire's holdings, it is my favorite.

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Bank of America is an advertising partner of Motley Fool Money. American Express is an advertising partner of Motley Fool Money. Micah Zimmerman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends American Express, Apple, Berkshire Hathaway, and Chevron. The Motley Fool recommends Lululemon Athletica Inc. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.