The Higher Margin Player in an Oligopoly Always Wins

Many industries consolidate over time into just a handful of players. These oligopolies can jockey for market share. Chances are one of the players will move towards higher-end consumers to differentiate, and others may shift to the lower end.

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  • Either way, the company that can sport the highest profit margin will typically be the best performer for shareholders over time. Higher profit margins provide more capital for reinvestment in the business, or for dividends or share buybacks for investors.

    In the credit card industry, American Express (AXP) has carved out a higher-end niche than competitors. And that’s allowed the company to be a top performer for investors over time.

    Amid a slowing economy, American Express has managed to grow revenues by 8 percent over the past year. And the company’s CEO sees the business firing on all cylinders as Gen Z members start to embrace the brand.

    Action to take: Shares are reasonably priced at 18 times earnings. Plus, the company is a dividend growth play. While the current yield is low at about 1.5 percent, it’s got room for further growth over time.

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  • For traders, shares recently dropped amid the latest bank fears, and will likely regain some of that lost ground in the coming weeks. The June $180 calls, last going for about $3.35, offer mid-double-digit returns on such a bounce higher.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.