American Express Company (NYSE:AXP) shares are down 50% in the last 3 months and trading under $20 a share.  Why care?  First off, Berkshire Hathaway is its largest stockholder with 151 million, or 13%, of AXP shares. Barron’s says “Berkshire’s stake suggests the company’s stock may be near a bottom”.

At Barron’s:

American Express: Nowhere Near Its Credit Limit

By ANDREW BARY

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AmEx CEO Ken Chenault is considered among the best financial-services executives, but he erred in rapidly expanding the U.S. credit-card portfolio in recent years to $64 billion from $38 billion in 2004. AmEx’s credit-card loan losses are rising. The loss rate on AmEx’s charge-card portfolio remains low at just 0.33%.

“This company can weather a huge hurricane and come out fine,” says Vitaliy Katsenelson, head of research at Investment Management Associates in Denver. “American Express is one the simplest financial companies to analyze. It’s much more transparent than Citigroup or JPMorgan or Goldman Sachs.”

Who’s Vitaliy Katsenelson?

There’s one book out there that helps to define what is taking place in this ‘flip-flop’ market.  I had the pleasure of reading a copy of Vitaliy Katsenelson’s ‘Active Value Investing’ and I highly recommend it to any investor that is looking for a decent guide to today’s market. Click here to shop for his book on Amazon.com.

He argues that the government safety net removes a key risk with AmEx: funding. AmEx has relied on commercial paper and on securitization of credit-card loans, two markets that are difficult now to access. AmEx says it’s comfortable about its ability to refinance some $24 billion in debt maturing in the next year.

The company’s ratio of tangible common equity to what it calls “managed” assets of $156 billion — which include credit-card loans financed with debt and securitizations — is 6%, versus 4% for Goldman Sachs.

It’s understandable that investors shun AmEx because of the company’s exposure to the credit markets and the consumer. While next year is likely to be difficult, the company should come through in good shape. And if things get really tough, Chenault probably can pick up the phone and find a willing listener in Omaha.