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There are plenty of financials that don’t deserve to trade down just because American Express reported a bad quarter. Not all firms in this sector are created equal.
But that didn’t stop Cramer’s “financial fortresses” – JPMorgan Chase [JPM
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], US Bancorp [USB
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], Wells Fargo [WFC
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] and Bank of America [BAC
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] – from declining in after-hours trading following AXP’s numbers. Luckily for investors, though, this is a case of broken stocks, not broken companies. So there’s a chance here for the swift and smart to make some money.
The key difference between American Express and these other banks is that AXP has no customer deposit base to fall back on. JPMorgan and even Wachovia [WB
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], which is recovering after announcing poor earnings Tuesday, have a large reserve of customer cash that allows them to withstand losses. American Express makes money only on its transaction and membership fees and loan interest.
Yes, unlike Mastercard [MA
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] and Visa [V
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], AXP actually loans its customers money. That’s why Cramer recommended MA during Tuesday’s show. While AXP is a credit-card company with credit risk, Mastercard, which is about transaction volume, is a company without risk.
There’s also the fact that AXP’s earnings took MA down 13%. That’s a nice entry point.
If anything, American Express is more like Target [TGT
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], which has a big credit-card business of its own. Target today charged off 9.6% of the loans in its June Master trust versus 8.1% in May. But at least Target has the retail business to counterbalance the losses.
The bottom line? The next time a bad company takes down good stocks – act quickly.
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