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Loads of traders monitor the strikes made by billionaire Warren Buffett. Given his market-thrashing report over many a long time, that is hardly stunning.
Within the first quarter, Buffett’s holding firm Berkshire Hathaway offloaded a few financial institution shares, particularly Citigroup and Nu Holdings (NYSE: NU). This was a part of a sample, as Berkshire had been chopping its publicity to the monetary sector over the previous quarters.
Right here’s why I gained’t be following Buffett’s lead by promoting my very own Nu shares.
A completely completely different universe
Earlier than getting onto the corporate, I wish to briefly clarify why I don’t blindly copy the Oracle of Omaha’s trades.
Berkshire Hathaway is a $1.05trn behemoth, with a inventory portfolio price round $250bn. It additionally had $347bn in money on the finish of March.
Within the second quarter of 2024, Buffett owned roughly 107m Nu shares. That’s roughly 107m greater than I do. My place is only a tiny sliver of the 107,118,784 shares I casually rounded right down to 107m!
Again then, Berkshire’s Nu holding was price round $1.38bn, or 0.49% of the portfolio. Due to this fact, the Nu share value might have trebled and nonetheless barely moved the needle for Berkshire.
Truth is, Buffett’s investing universe is totally completely different to mine. He wants elephant-sized alternatives to maneuver the needle, whereas I don’t. For my infinitely smaller portfolio, a trebling of certainly one of my shares would make an enormous distinction to efficiency.
What’s Nu anyway?
For these unfamiliar, Nu is a Brazilian fintech firm — generally known as Nubank — that operates one of many world’s largest digital banking platforms.
It presents numerous monetary providers, together with digital present accounts, credit score and debit playing cards, private loans, insurance coverage, inventory and crypto buying and selling, company providers, and extra.
Buyer development has been really spectacular. It ended 2021 with 53.9m prospects throughout Brazil, Mexico, and Colombia. By the primary quarter of this yr, that determine had swelled to 118.6m.
Income development has been equally explosive, going from $1.7bn in 2021 to $11.5bn in 2024! In the meantime, the agency has gone from an adjusted web lack of $26.8m in 2020 to just about $2bn in web revenue final yr.
Nonetheless early days
Nu’s secret sauce is the far superior banking expertise that it’s bringing to Latin America. Prospects love the digital-first mannequin and much decrease — or zero — charges.
Certainly, the model is so sturdy in Brazil that round 60% of the grownup inhabitants now use the app! And an growing quantity are utilizing it as their main banking account.
Now, one factor to notice right here is that Nu experiences in US {dollars} however earns in Brazilian, Mexican, and Colombian currencies. So if these weaken, earnings can drop even when native development is powerful. It is a danger.
The inventory can be buying and selling at 24 instances ahead earnings, which isn’t low-cost. Any development hiccups are prone to be punished by the market.
Nonetheless, execution has been impeccable to date, and forecasts level to a doubling in income and trebling in earnings by 2028. So there’s an opportunity the inventory will look low-cost in future.
By geographic growth and rising buyer adoption of providers, Nu appears effectively positioned to drive vital earnings development over the approaching years. Buffett might have exited, however I’m actually not, and reckon it’s price contemplating at $13.
