American Express

I purchased 1,000 shares of American Express today (ticker:AXP), mainly based on valuation. AXP is a leading global credit card, payments and travel company. There two main businesses are:
-Global Consumer group: US and international credit card services, Travelers checks, consumer travel etc.
-Global Business-to-Business group: Corporate Employee Card, Corporate Purchasing, American Express Business Travel, Global Network and Merchant Services.

Here are some things I like about AXP:
1) AXP has one of the top global brands. They attract high-spending, creditworthy customers who are attractive to banks that issue credit cards. Since AXP won the anti-trust suit in 2004, many banks have started offering American Express branded cards.
2) There is a worldwide trend to use credit cards instead of cash which has boosted the stock prices of Visa and MasterCard, but AXP should also be included in this group, especially longer term as India and China produce more upscale consumers.
3) AXP is a Warren Buffett stock that usually sells at a premium PE. But it was available today at a forward PE ratio of only 11.5 times earnings.
4) Return on equity has been running over 35% per year.
5) Zero sub-prime exposure.
6) High free cash flows and rock solid balance sheet.
7) Shareholder friendly. AXP pays a growing 1.7% dividend and management also returns 3-4% a year via share buybacks.
8) Great Sponsorship: Aside from Berkshire Hathaway, AXP is the #1 holding of Blue Ridge Capital (Griffin) and large positions are held by Clarium Capital (Thiel), Eton Park Capital (Mindich) and Tweedy Browne among others.
9) High lending standards.
10) The travelers check business is a true cash cow.

Normally I like to use a covered call strategy with blue chip stocks, but AXP is just too cheap. I think it is worth at least $55/share (currently trading near $41). I would consider writing covered calls against my position if AXP were to trade up to 50 or higher in the next few months.
Full disclosure: I am long AXP shares.