Investing Insights: Uncovering Potential in Nu Holdings Amid Buffett’s Caution
Investors often keep a close watch on Berkshire Hathaway to gauge Warren Buffett’s strategies. Recently, however, many of Berkshire’s stocks remain near all-time highs. The company has been adjusting its portfolio by cutting back on top positions, halting buybacks, and increasing cash reserves for short-term T-bills.
Buffett’s Cautious Strategy Sparks Investor Debate
Buffett’s cautious stance indicates the market may be on the brink of a correction this year. This raises questions about whether now is the right time to use Berkshire’s portfolio as a guide for new investments. However, a closer look reveals overlooked gems in its holdings that are trading well below their peak values. One such stock is Nu Holdings (NYSE: NU), which has seen a decline of over 30% since reaching a record high last November.
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Image source: Berkshire Hathaway.
Understanding Nu Holdings
Nu is the largest digital-only bank in Latin America, headquartered in Brazil and also serving Mexico and Colombia. When Nu went public in December 2021, Berkshire Hathaway acquired 107 million shares at $9 each.
In the third quarter of 2024, Berkshire sold 20.7 million shares, yet retains 86.4 million shares worth approximately $949 million, representing a 1.8% stake in the bank. While this investment makes up just 0.3% of Berkshire’s total portfolio, Nu continues to outpace traditional banks in growth.
Rapid Growth of Nu Holdings
Since the end of 2021, Nu’s customer base has skyrocketed from 33.3 million to 109.7 million by the third quarter of 2024. The activity rate also improved, climbing from 76% in 2021 to 84% in the third quarter, marking a consistent increase over the past 12 quarters.
This impressive growth is attributed to the expansion of their services in credit cards, loans, insurance, investments, and e-commerce. In 2023, their shopping app garnered 255 million visits. As a result, Nu’s monthly average revenue per active customer (ARPAC) grew from $4.50 in 2021 to $9.60 in 2023, and has remained above $11 in the first three quarters of 2024.
From 2021 to 2023, Nu’s revenue soared at a compound annual growth rate (CAGR) of 117% in USD. Additionally, it achieved profitability on a GAAP basis in 2023. Analysts project a future CAGR of 35% for revenue and a 55% rise in GAAP earnings per share (EPS) from 2023 to 2026.
Though Nu’s business is gaining maturity, the potential for growth remains high. The World Bank estimates that over 70% of Latin America’s population remains unbanked, creating vast opportunities for digital banks. Nu is also advancing its capabilities through AI tools for analytics, customer support, and cybersecurity, positioning it well to enter new markets.
Is Nu Holdings Stock an Attractive Buy?
Valued at $11, Nu’s stock trades at just 20 times projected EPS for 2025, which seems low given its growth potential. Yet, challenges like inflation and currency fluctuations in Latin America are keeping valuations down. Additionally, high U.S. interest rates are steering investors away from higher-growth emerging markets.
If these challenges improve, Nu could be an appealing investment opportunity. With its established position as Latin America’s leading digital bank and ongoing expansion into fintech services, it offers exposure to the crypto and e-commerce sectors.
Buffett’s decision to maintain a portion of Berkshire’s stake in Nu, rather than liquidate it entirely, further underscores the stock’s promise. For those considering a long-term investment reflective of Buffett’s philosophy, Nu may align with those goals.
Assessing a $1,000 Investment in Nu Holdings
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Leo Sun has positions in Berkshire Hathaway. The Motley Fool holds positions in and endorses Berkshire Hathaway. The Motley Fool recommends Nu Holdings. For full disclosure, please see our policy.
The views and opinions expressed herein belong to the author and do not necessarily reflect those of Nasdaq, Inc.
