If you’re looking for profitable stock ideas, look no further than Warren Buffett’s portfolio. Buffett has proven to be one of the best investors in history, and stealing his ideas is a great way to position your own portfolio for success. Currently his holding company, Berkshire Hathawayis betting on two stocks that every investor should strongly consider. The long-term upside potential for both companies is truly impressive.
Do you want maximum growth? Buy this stock.
Few companies have grown as quickly as Now Holdings (NYSE: NOW). Revenue growth rates have regularly exceeded 100% year after year, while profits have just turned positive and are on a strong upward trajectory. The shares trade at just 32 times forward earnings, even though earnings growth is expected to be around 46% next year. What kind of company trades at such a low valuation despite such strong fundamentals?
Part of Nu’s problem is a lack of general market awareness, as the company operates exclusively in Latin America. But there is also a problem with underestimating these types of fintech companies. Much of the market probably still thinks of Nu as a banking stock, but it’s actually a fintech company that can grow much faster and generate higher profits than traditional banks. Last quarter, for example, Wells Fargo posted revenue growth of about 1% with a return on equity just above 10%. Now turnover has grown by 55%, with a return on equity of 24%.
It’s fair to say that Nu already has a lot of fans, including some notable investors like Warren Buffett. The bank also already has a market capitalization of $60 billion with more than 100 million customers. But roughly 100% of this customer base is in just three countries: Brazil, Mexico and Colombia. In a nutshell, Nu is a fintech company focused on bringing low-cost financial services to a handful of countries that most American investors don’t pay attention to. And yet Nu has taken these markets by storm. In 2013, almost no one in Brazil used Nu for their credit card, savings account or insurance policy. Nowadays more than half of all Brazilian adults use Nu.
It’s clear that Nu is a hit in the local markets, even if most foreign investors haven’t seen the company or its shares yet. And shares command a premium over most traditional bank stocks. But trading at just 32 times forward earnings, despite tripling earnings per share (EPS) in the last twelve months, is simply too attractive to ignore. Buffett hasn’t sold any shares since the company’s 2021 IPO, and it’s not too late to join him in this little-known growth gem.
Afraid of a bear market? Owner of this company.
If you’re concerned about market volatility, few companies offer as much downside protection as Chubb (NYSE:CB). At the end of last year, Buffett and Berkshire started buying back Chubb shares. But they didn’t want the market to know about this buying activity. So they applied for a disclosure waiver from the SEC, which they received. The exemption was reasonable considering Berkshire is already a major player in the insurance industry. But few suspected that Chubb was the company Berkshire poured billions into. Chubb is now Berkshire’s ninth-largest holding in its publicly traded portfolio – a nearly $7 billion stake.
If the markets turn sour, this is the type of stock I would want to own. That’s true even as Chubb’s stock price hits record highs. Analysts expect property and casualty insurers like Chubb to have fantastic years ahead. For example, research from the Swiss Re Group predicts that non-life insurance prices and profitability will rise due to weakening competition, higher interest rates and declining inflation. “Property and casualty insurers are expected to improve their profitability in 2024, with industry-wide return on equity (ROE) in eight major markets reaching 10% so far this year, up from 6% in 2023,” the company predicts. “ROE of more than 10% is forecast by 2025.”
If current trends continue, Chubb will be in for a record-breaking run from a financial perspective. And the company is uniquely positioned to weather any market downturns. That’s because non-life insurance is generally recession-proof, and Chubb has proven willing to compete when capital is scarce. Just look at the Great Recession. During the 2008 crash, Chubb’s stock beat the S&P500 while the rest of the financial sector collapsed. Chubb stock went on to beat the S&P 500 over the next decade.
Chubb certainly doesn’t have as much upside potential as Nu, but it is suitable for more portfolios that want to balance risk and return.
Should you invest $1,000 in Nu Holdings now?
Consider the following before purchasing shares in Nu Holdings:
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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
2 No-Brainer Berkshire Hathaway Stocks to Buy Now for Under $500 was originally published by The Motley Fool
