Many investors closely follow Berkshire Hathaway's portfolio to track Warren Buffett's latest moves. However, many of Berkshire's stocks are still hovering near their all-time highs -- even as it trims many of its top positions, pauses its own buybacks, and focuses on raising cash and buying more short-term T-bills.
Buffett's cautious approach seems to suggest the market might be due for a pullback this year, so it might not seem like the best time to use Berkshire's portfolio as a shopping list for new stocks. But if we dig deeper, we'll find some oft-overlooked names in its portfolio that are still trading well below their record highs. One of those stocks is Nu Holdings (NYSE: NU), which has declined more than 30% after setting a fresh record high last November.
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Image source: Berkshire Hathaway.
What does Nu Holdings do?
Nu is the largest digital-only direct bank in Latin America. It's based in Brazil, and it also serves customers in Mexico and Colombia. Berkshire Hathaway bought 107 million shares of Nu when it went public at $9 a share in Dec. 2021.
Berkshire sold 20.7 million of those shares in the third quarter of 2024, but its 86.4 million remaining shares are still worth $949 million and give it a 1.8% stake in the company. Berkshire's stake in Nu only accounts for 0.3% of its entire portfolio, but the Latin American bank is still growing much faster than its brick-and-mortar competitors.
How fast is Nu Holdings growing?
Nu's total number of customers more than tripled from 33.3 million at the end of 2021 to 109.7 million in the third quarter of 2024. Its activity rate (its active customers divided by total customers) rose from 76% in 2021 to 84% in the third quarter -- and that figure rose sequentially for the past 12 consecutive quarters.
That robust growth was driven by its rollout of more checking, credit card, lending, insurance, investment, cryptocurrency, and business-oriented services. It also tethered more retailers to its Nu Shopping e-commerce app, which reached 255 million visits in 2023. All of those tailwinds boosted Nu's monthly average revenue per active customer (ARPAC) from $4.50 in 2021 to $9.60 in 2023, and that figure has stayed above $11 throughout the first three quarters of 2024.
From 2021 to 2023, Nu's revenue grew at a compound annual growth rate (CAGR) of 117% in USD terms. It also turned profitable on a generally accepted accounting principles (GAAP) basis in 2023. From 2023 to 2026, analysts expect its revenue to rise at a CAGR of 35% as its GAAP earnings per share (EPS) increases at a CAGR of 55%.
Nu's business is gradually maturing, but it still has plenty of room to grow. The World Bank estimates that more than 70% of Latin America's population is still unbanked, which makes it a fertile market for digital-only direct banks. Its rollout of more AI tools to support its analytics tools, chatbots, and cybersecurity services should also help it scale up its business more effectively and enter new markets over the next few years.
Why is Nu's stock still a screaming bargain?
At $11, Nu's stock trades at just 20 times its projected EPS for 2025. That's a cheap valuation relative to its growth potential, but the inflationary and currency devaluation issues in Latin America are likely compressing its valuation. Elevated interest rates in the U.S. are also likely driving investors away from higher-growth emerging market stocks.
But if you believe those headwinds will dissipate over the next few years, Nu could be a great buy today. It's established a strong first-mover's advantage as Latin America's top digital bank, and it's evolving into a more diversified fintech play with plenty of exposure to the crypto and e-commerce markets.
That's probably why Buffett only pruned Berkshire's existing position in Nu instead of selling all of his shares. So, if you're looking for a Buffett stock to buy and hold forever, Nu might just check all of the right boxes.
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Leo Sun has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
