Exceptional Berkshire Hathaway Share, Overseen by Buffett, Drops by 30% for Investment and Long-term Retention
It's no secret that many investors keep a close eye on Warren Buffett's moves at Berkshire Hathaway to spot his latest investments. Yet, despite Berkshire trimming some of its top positions and pausing buybacks, several of its stocks are still hovering near their all-time highs. This might lead one to think it's not the best time to follow Buffett's portfolio for new investment ideas, especially if you believe a market pullback is on the horizon.
However, if you dig deeper, you'll find some undervalued gems hidden in Berkshire Hathaway's portfolio. One such stock is Nu Holdings (NU), which has taken a 30%+ hit since setting a new record high in November 2021.
What's Nu Holdings all about?
Nu Holdings is the largest digital-only bank in Latin America, primarily serving customers in Brazil, Mexico, and Colombia. Berkshire Hathaway went all-in on Nu, investing in 107 million shares at $9 each when the company went public in December 2021. Although Berkshire Sell off 20.7 million of those shares in the third quarter of 2024, the 86.4 million shares it still holds are worth a pretty penny, totaling over $949 million and giving it a 1.8% stake in the company.
Nu's stake in Berkshire Hathaway's portfolio may be small, but the startup is growing faster than its brick-and-mortar competitors. In fact, Nu's customer base more than tripled between the end of 2021 and the third quarter of 2024, with its activity rate consistently rising year over year.
How quickly is Nu Holdings moving up the ladder?
Quite a bit, actually. Nu's total customers jumped from 33.3 million to 109.7 million in just over three years, with a sequence of impressive growth statistics:
- Customer Activity Rate: The percentage of active customers to total customers increased from 76% in 2021 to 84% in the third quarter of 2024.
- Monthly Average Revenue per Active Customer (ARPAC): This figure has seen a noticeable uptick, rising from $4.50 in 2021 to $11 in 2023 and staying above that level throughout the following quarters.
The rising demand for Nu's services can be attributed to its expansion into various financial sectors, including checking, credit, lending, insurance, cryptocurrency, and business services. Nu's e-commerce app, Nu Shopping, also saw a significant increase in traffic, reaching 255 million visits in 2023.
Is Nu's stock still a steal?
Despite these impressive growth figures, Nu's stock currently trades at just 20 times its projected EPS for 2025. This suggests that investors are still underestimating the company's growth potential, but inflationary issues in Latin America and the higher interest rates in the US could be squeezing its valuation.
However, if you believe these headwinds will ease up in the not-so-distant future, Nu Holdings could offer an excellent buying opportunity. Established as Latin America's top digital bank and evolving into a more diversified fintech play, Nu boasts strong first-mover's advantage and a growing presence in the cryptocurrency and e-commerce markets.
In fact, Buffett saw enough growth potential in Nu to stick with his investment, opting to prune his existing position instead of bailing entirely. If you're looking for a dependable, long-term investment, Nu could very well tick all the right boxes.
Despite the recent dip in Nu Holdings' stock price, Berkshire Hathaway's significant investment in the digital-only bank remains a testament to its potential in the finance sector. With steady growth in its customer base and revenue per active customer, Nu's undervalued stock might present an interesting opportunity for those willing to invest in finance and technology.
In light of Warren Buffett's decision to hold onto his shares in Nu Holdings, savvy investors might find this undervalued gem an attractive long-term investment, especially in a market that shows signs of stabilization or recovery.
