Why should you buy Warren Buffett stock?

American Express (AXP -0.97%) The stock was doing quite well this year until mid-October, when it reported third-quarter earnings. Investors accustomed to solid quarterly results from other financial sector majors fled AmEx, clipping the wings of a stock that has been soaring since the start of the year.

Like Warren Buffett, whose Berkshire Hathaway I have owned a majority stake in the company since 1964 and have been a bull on AmEx for many years. So to me, this kind of price drop following a drop in earnings is an anomaly and by no means a new normal for the credit card giant. Here’s why.

Reasons for concern?

To briefly summarize, AmEx’s net revenue for this period increased by 8% year-on-year to $16.6 billionwhile its net income rose 2% to $2.51 billion.

This net figure was significantly higher than analysts’ consensus estimate. However, AmEx had the courage to report revenue just below the average expert forecast of almost $16.7 billion. This earnings season, the absence of at least one of the major indicators is the exception rather than the rule in high finance; for example, most large national banks outperformed both measures.

AmEx observers studying the company’s quarter identified another source of discomfort: provisions for credit losses. That item, which details how much a finance company sets aside for loans that might turn out bad, rose a relatively steep 21% to $5.3 billion.

The combination of these two factors suggests that AmEx’s vaunted base of wealthy “members” (the company’s fancy term for cardholders) is holding back its spending. Even worse, the credit card king was counting on a noticeable increase in delinquencies in future periods.

Get it while it’s cheap

Here’s the thing, though: lending businesses, including credit card issuers like AmEx, tend to be conservative in their financial practices. They must be so because lending funds is inherently a risky business, no matter how creditworthy or wealthy the borrowers are.

To take a top-down view of the macroeconomy, the Federal Reserve recently decided to cut its target for the federal funds rate by 50 basis points, and more cuts could be coming soon. In general terms, lower rates mean more borrowing (including credit card spending). So I think AmEx and other financiers are building up their reserves to hedge against a surge in borrowing. Ultimately, the fate of this company is tied to the fate of its lending.

And this is a very good lender. Since both the issuer and the payment system stand behind their cards, unlike Visa And Mastercardwho are solely processors – AmEx has deep and extensive knowledge of its members. By leveraging its rewards program, which has always been a follow-the-leader model for other issuers, it can specifically target members to encourage them to spend more.

AmEx cardholders love to spend, so they gravitate toward products like the invitation-only Centurion Unlimited Card (i.e. Black). It’s not easy for any veteran company to regularly post 11-figure quarterly revenue numbers and grow them even higher, but this company manages to do it on a regular basis. This also regularly results in a strong net income line, with the third quarter admission will be more than 15%.

With such good results, who ultimately cares if revenue was slightly below consensus? AmEx operates a strong and resilient business that faces a long growth path. Like our old friend Warren, I’ve been a bull for the company in the past, I’m a bull now, and I’m confident I’ll remain a bull for the foreseeable future. AmEx stock remains a great addition to any portfolio, especially after the recent price drop.