A lot of investors track the moves made by billionaire Warren Buffett. Given his market-thrashing record over many decades, this is hardly surprising.
In the first quarter, Buffett’s holding company Berkshire Hathaway offloaded a couple of bank stocks, namely Citigroup and Nu Holdings (NYSE: NU). This was part of a pattern, as Berkshire had been cutting its exposure to the financial sector over the preceding quarters.
Here’s why I won’t be following Buffett’s lead by selling my own Nu shares.
A totally different universe
Before getting onto the company, I want to briefly explain why I don’t blindly copy the Oracle of Omaha’s trades.
Berkshire Hathaway is a $1.05trn behemoth, with a stock portfolio worth around $250bn. It also had $347bn in cash at the end of March.
In the second quarter of 2024, Buffett owned roughly 107m Nu shares. That’s roughly 107m more than I do. My position is just a tiny sliver of the 107,118,784 shares I casually rounded down to 107m!
Back then, Berkshire’s Nu holding was worth around $1.38bn, or 0.49% of the portfolio. Therefore, the Nu share price could have trebled and still barely moved the needle for Berkshire.
Fact is, Buffett’s investing universe is completely different to mine. He needs elephant-sized opportunities to move the needle, whereas I don’t. For my infinitely smaller portfolio, a trebling of one of my stocks would make a big difference to performance.
What is Nu anyway?
For those unfamiliar, Nu is a Brazilian fintech company — commonly called Nubank — that operates one of the world’s largest digital banking platforms.
It offers various financial services, including digital current accounts, credit and debit cards, personal loans, insurance, stock and crypto trading, corporate services, and more.
Customer growth has been truly spectacular. It ended 2021 with 53.9m customers across Brazil, Mexico, and Colombia. By the first quarter of this year, that figure had swelled to 118.6m.
Revenue growth has been equally explosive, going from $1.7bn in 2021 to $11.5bn in 2024! Meanwhile, the firm has gone from an adjusted net loss of $26.8m in 2020 to nearly $2bn in net profit last year.
Still early days
Nu’s secret sauce is the far superior banking experience that it’s bringing to Latin America. Customers love the digital-first model and far lower — or zero — fees.
Indeed, the brand is so strong in Brazil that around 60% of the adult population now use the app! And an increasing number are using it as their primary banking account.
Now, one thing to note here is that Nu reports in US dollars but earns in Brazilian, Mexican, and Colombian currencies. So if those weaken, earnings can drop even when local growth is strong. This is a risk.
The stock is also trading at 24 times forward earnings, which isn’t cheap. Any growth hiccups are likely to be punished by the market.
However, execution has been impeccable so far, and forecasts point to a doubling in revenue and trebling in earnings by 2028. So there’s a chance the stock will look cheap in future.
Through geographic expansion and rising customer adoption of services, Nu looks well placed to drive significant earnings growth over the coming years. Buffett may have exited, but I’m certainly not, and reckon it’s worth considering at $13.
