American Express continued its strong rally in 2024, becoming one of the best-performing companies in the S&P 500 index. AXP stock soared to a record high of $307, up by over 57%. Since its lowest level in 2020, it has surged more than 370%, bringing its market cap to over $209 billion. 

American Express stock jumped as growth continued

American Express, one of the top investments by Warren Buffett, had a strong performance in 2024. 

It has mostly benefited from the relatively high interest rates and the rising demand for its credit cards, especially among young people. 

AXP’s net interest income rose from over $8.6 billion in 2019 to over $15 billion in the trailing twelve months. This growth has helped to push its annual revenue from $39 billion to $59 billion in the same period. 

The most recent results showed that American Express’s business continued well in the third quarter. 

Its total billed business rose by 6% to $387 billion, bringing the nine-month billings to over $1.14 trillion. 

This growth translated to a 8% revenue growth of $16.6 billion and its net income to $2.5 billion. As a result, the management boosted its conservative forward guidance, as the number of cardholders rose. It expects its earnings per share to be between $13.75 and $14.05.

American Express business will likely continue to do well in the next few years, as it will take advantage of higher interest rates. Its annual revenue is expected to be about $66 billion, representing a near 10% increase from a year earlier. 

The company’s revenue is expected to grow to $71 billion this year. If this trend continues, it will likely have over $100 billion in annual revenue by 2030. The management believes that the company will deliver double-digit returns in the next few years.

Read more: American Express stock has upside, but a pullback can’t be ruled out

Its most important catalyst is that the younger generation is joining its business. Data shows that about three-quarters of its accounts opened in 2023 came from millennials and Gen Z. 

Most importantly, many of these customers are going straight to its $695 annual fee consumer platinum card. In the past, many consumers used to start with the zero-fee card and worked their way up.

Another important factor is that American Express is fairly immune to the ongoing credit card default rates in the US. That’s because Amex mostly focuses on affluent clients unlike other credit card companies. 

The most recent results showed that credit cards with 30+ days due stood at just 1.3%, lower than the pre-pandemic level of 1.5%. Also, the net write-off rates has dropped from the pre-pandemic level of 2.2% to 1.9%. 

Still, a key concern for American Express is that it is a fairly overvalued company. One way to assess this is to compare its valuation with its annual profits. With a market cap of over $202 billion and annual profits of almost $10 billion, American Express has a PE of about 20. 

AXP stock price analysis

AXP stock chart | Source: TradingView

The weekly chart shows that the American Express stock price has been in a strong uptrend in the past few years. It has found some substantial resistance at the $300 level. The stock has remained above the 50-week and 100-week moving averages, pointing to a potential mean reversion. 

There are signs that the Relative Strength Index (RSI) and the MACD indicators have formed a bearish divergence pattern. Therefore, the stock will likely pull back some more this year and then resume its uptrend. As we wrote in this Dow Jones report, there is a likelihood that some of the top gainers in 2024 will reverse this year. That would see it drop to $250 and then rebound.

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United Airlines stock had a great year, surging by over 140%, beating benchmark indices like the S&P 500 and Dow Jones. UAL also did better than popular technology companies like Microsoft, Amazon, and Alphabet.

United Airlines did much better than other airline groups like Delta, American Airlines, Southwest, and JetBlue. So, why did the UAL stock price surge in 2024, and will the rally gain steam this year?

Profitability growth continued

United Airlines stock price surged in 2024 mostly because of the ongoing recovery of the civil aviation industry, focus on profitability, and its capital returns to investors. 

The management has worked hard and continued to boost its profit margins in the past few years as it aims to move in par with Delta Air Lines, the gold standard in the industry.

Its revenue has continued growing in the past few years, and analysts expect the trend to continue. It generated over $15 billion in annual revenue in 2020 as the pandemic forced it to stop flying.

The revenue growth then continued in 2021, when it made $24 billion. Its trailing twelve-month (TTM) revenue stood at $60 billion. 

Analysts are upbeat about United Airlines’s business. The average revenue estimate for 2024 is $56.65 billion, up from $54 billion a year earlier. It will then cross the $60 billion in the next financial year. 

United Airlines’ profits are also growing. In the trailing twelve months, they went from a net loss of $1.6 billion in 2021 to a net profit of $2.7 billion. 

This growth has helped the company return funds to its shareholders. In the last quarter, it announced a $1.5 billion share repurchase program, a move that is expected to reduce its share count and boost its earnings per share.

The management hopes to continue growing its business, especially its international segment, which the management to double.

Read more: Here’s why United Airlines stock is beating American, IAG, Delta

Potential risks remain

Still, United Airlines stock face numerous risks ahead. The first one is that competition, especially on its international route, is expected to be stiff in the next few years as more airlines intensify their volume. This stiff competition may affect its volume and pricing.

Second, airlines tend to be highly cyclical businesses, which experience boom and bust cycles. The past few years have been boom periods, meaning that a bust may happen either in 2025 or later.

Third, the stock has become fairly overvalued after more than quadrupling in the past few years. As such, there is a risk that it will go through a valuation reset when it gets to the average analyst estimate of $110.

United Airlines stock has double topped

The other risk to the UAL share price is that it is seeing signs of double-topping at $104. A double top is one of the most popular bearish chart patterns in the market. In this case, the neckline is at $90.13.

The stock also remains above the 50-day and 100-day moving averages. That is a sign that it will have a mean reversion situation soon. A mean reversion is when a stock retreats and falls back to the average prices over time. In this case, a mean reversion to the 100 day moving average would see it drop to around $80.

On the flip side, more United Airlines stock surge will be confirmed if it rises and moves above the double-top level at $104.

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After a lacklustre performance in recent years, Indian large-cap stocks could see a comeback in 2025, driven by attractive valuations resulting from foreign investor selling and the potential for strong corporate earnings.

A CNBC-TV18 poll which gathered insights from 61 fund managers, high-net-worth individuals, and market dealers indicated a strong leaning in favour of large-cap stocks for 2025.

Further, according to the latest report by Canara Robeco Mutual Fund, the fall of the Nifty 100 index- which tracks the performance of India’s 100 largest companies by market capitalisation- to near all-time lows creates a significant opportunity for mean reversion, where valuations return to their historical norms.

Further, the report says, that the fact that these stocks represent leaders in their respective industries, they are more resilient and more capable of navigating global market volatility, as well as capitalising on long-term economic trends.

Why valuations are favouring large caps?

V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, recently said that FIIs sold equities worth Rs 1.19 lakh crore in 2024, even though they invested nearly Rs 1.21 lakh crore through primary markets, especially when the year saw a surfeit of initial share sales.

According to Bloomberg, global funds offloaded over $750 million worth of stocks in 2024, exacerbated by heavy selling in October and November.

One of the major reasons behind the heavy selling was the premium valuations of Indian stocks in the wake of slowing earnings growth.

Source: Moneycontrol

In September, the Nifty 50 index, which comprises the top 50 equity stocks, was trading at a price-to-earnings ratio of 24.7x, which was in line with its 5-year average, but higher than the 10-year average of 23.4x.

Currently, Nifty 50 is trading at a PE ratio of 21.9, whereas Nifty 100 is trading at a PE ratio of 22.4.

Nimesh Chandan, chief investment officer at Bajaj Finserv, which manages over $1.8 billion in assets, told CNBC,

Large caps have borne the brunt of selling by foreign investors, and valuations are attractive.

The Canara Robeco report added, “The domestic large-cap universe currently stands near its 3-year historical average while being undervalued against the Nifty 500 broader market index. This may open an opportunity for the large-cap space to be favourable for the upcoming period as per our belief.”

5 large-cap stocks that analysts are bullish on

Axis Bank share price target

Axis Bank is covered by 37 brokers, who have assigned an average rating of 4.33 out of 5.

The stock’s average target price is ₹1,349, suggesting a potential upside of 26% from its current price of ₹1,073.

Hindustan Unilever (HUL) share price target

Hindustan Unilever is tracked by 35 brokers, with an impressive average rating of 4.67.

Analysts have set an average target price of ₹2,934, indicating a 26% upside from the current price of ₹2,321.

IndusInd Bank share price target

IndusInd Bank has an average rating of 4.69 from 34 brokers.

The stock has an average target price of ₹1,630, reflecting a massive 67% upside from its current market price of ₹977.

Tata Motors share price target

Tata Motors has earned an average rating of 4.14 from 31 brokers.

Analysts project an average target price of ₹1,052, highlighting a potential upside of nearly 40% from the current price of ₹749.

State Bank of India (SBI) share price target

SBI is covered by 30 brokers, with an average rating of 4.75.

The average target price for the stock is ₹1,010, offering a potential upside of 27% from its current market price of ₹793.

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Indonesia’s delay in implementing its B40 biodiesel mandate is creating ripples through the global palm oil market, raising questions about export volumes, domestic consumption, industry stability, and future pricing trends.

The initiative aimed to raise palm oil blending in biodiesel to 40% from the current 35%, but regulatory bottlenecks have stalled progress, leaving traders and producers in limbo.

As the world’s largest palm oil producer, Indonesia’s biodiesel policies significantly influence global markets, making the delay a pivotal development for traders.

What is Indonesia’s B-40 mandate?

Initially planned for rollout on 1 January 2024, the B40 mandate has yet to take effect due to the absence of technical regulations and official decrees.

The policy was expected to curb Indonesian palm oil exports by redirecting supply to domestic biodiesel production.

The delay has left biodiesel producers, such as members of APROBI, unable to finalise contracts, and state energy firm Pertamina awaiting clear directives to operationalise its refineries for B40 production.

For global palm oil traders, this uncertainty is significant.

The mere announcement of the B40 policy had already driven Malaysia’s benchmark palm oil prices nearly 20% higher earlier in 2024, as markets anticipated reduced exports from Indonesia.

The current impasse has now tempered those expectations, leaving traders to reassess the potential impact on supply chains, pricing, and overall market dynamics.

Indonesia palm oil exports

Indonesia’s annual allocation of 15.62 million kilolitres (4.13 billion gallons) of palm oil-based biodiesel for 2025 is critical to understanding the policy’s impact.

However, with implementation delayed, traders are struggling to estimate how much palm oil will remain available for export.

This uncertainty could disrupt market dynamics, particularly in neighbouring Malaysia, which competes for global palm oil demand, and potentially shift the balance of trade in the region.

Moreover, concerns about the scope of government subsidies for B40 have added to the confusion.

Analysts note that Indonesia may only subsidise biodiesel for non-industrial use, which accounts for less than half of the country’s demand.

If this materialises, the policy could fall short of its intended impact, undermining both domestic consumption targets and global market expectations.

This raises broader concerns about policy consistency in Indonesia’s biofuel strategy.

Palm oil price outlook

The delayed implementation of the B40 policy presents a mixed outlook for palm oil markets.

On the one hand, the uncertainty may cap bullish sentiment, as traders remain cautious about Indonesia’s ability to execute the mandate effectively.

On the other, any sudden progress in rolling out the policy could lead to rapid price adjustments, particularly if export volumes are curtailed, potentially reshaping global supply chains.

For Indonesia, resolving the bottlenecks is essential not just for domestic energy goals but also for maintaining its leadership in the global palm oil market.

Until then, traders and producers alike must navigate a landscape of shifting expectations, regulatory ambiguity, and uncertain timelines for a policy that could significantly impact the sector.

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The year 2024 witnessed a surge in the valuation of Artificial Intelligence (AI) stocks, fueled by a confluence of factors.

Rapid advancements in AI technology, coupled with growing investor enthusiasm and a recognition of the transformative potential of AI across various sectors, propelled many AI-focused companies to significant stock price appreciation

AI continued to dominate corporate discourse in 2024, with over 40% of S&P 500 companies mentioning it on their Q2 earnings calls.

This trend, following a dramatic surge in 2023, underscores the growing significance of AI across various sectors.

The greatest example of this AI-led surge in 2024 was Applovin.

AppLovin started the year with a market cap of around $13 billion, known for its investments in mobile gaming studios behind titles like “Woody Block Puzzle” and “Bingo Story.”

By year-end, its valuation surged to over $110 billion, surpassing companies like Starbucks, Intel, and Airbnb, with shares up 758% this year, leading all tech companies.

Will AI stocks continue to surge in 2025?

Analysts at global research firm UBS say that while there are both negative and positive drivers for AI stocks in the coming year, they should be able to perform well.

In its latest research note on AI, the brokerage argued that contrary to the widespread belief that AI stocks’ valuations are stretched, the rally in AI-related stocks over the last two years has primarily been driven by solid earnings growth, not an expansion in price-to-earnings (P/E) multiples.

For instance, NVIDIA’s forward P/E was around 40x when ChatGPT was launched in late November 2022. Despite the stock’s remarkable rise, its P/E multiple has decreased to the low 30s, the brokerage highlighted.

Looking forward, UBS expects the AI theme to continue its strong earnings growth without needing a P/E rerating. The analysts forecast that their AI portfolio will deliver 25% EPS growth in 2025, following 35% EPS growth in 2024.

Even with a moderate derating of P/E multiples, UBS estimates mid-teen returns in 2025, which would still be impressive after two years of strong performance.

However, UBS highlights factors that could influence the P/E multiple. On the negative side, slower-than-expected AI monetization and macroeconomic or product cycle uncertainties could pressure P/E multiples.

On the positive side, faster monetisation and stronger cash returns could support a rerating.

Volatility in AI stocks in 2025

UBS acknowledges that the easy gains in AI stocks are behind us, and investors should prepare for slightly more volatile returns in 2025.

This expectation stems from the more mature stage of the AI rally, with uncertainties surrounding product cycles and tariff-related issues potentially leading to short-term profit-taking by tactical investors.

This could result in greater volatility, as per the analysts.

Investors can take advantage of heightened volatility through structured strategies, particularly by buying dips in quality AI stocks, as the focus is expected to shift back to strong fundamentals.

UBS also highlights that regulatory debates could add to volatility in AI stocks.

However, based on lessons from the internet and smart device eras, they believe that regulation-driven corrections tend to be short-lived, with long-term performance driven by fundamentals.

AI regulations to take shape in 2025

In 2024, AI regulations started to catch up, and UBS expects more rules to be introduced in 2025.

While regulations have always posed a risk to the tech sector, this is particularly true for AI, given the rapid evolution of the industry.

UBS anticipates that AI regulations will accelerate in the coming years, with increased regulatory attention expected from the new US administration, as well as in China and Europe.

The firm sees early-stage regulations as beneficial, as they can guide more orderly growth for the sector.

However, the introduction of regulations during the later stages of development can cause significant damage, as seen in other industries like education and fintech.

UBS stresses that while AI regulations, including export controls, are an important risk to monitor, any significant correction driven by geopolitics or regulations could present a buying opportunity for long-term investors.

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