Warren Buffett and Cathie Wood don’t usually agree on much when it comes to building a portfolio. Only rarely did they own the same company.
But there’s one growth stock that both investors love: Latin American fintech Now Holdings (NYSE: NOW) – so much so that they have collectively invested almost $1.5 billion in the company. And yet many investors have never heard of this company.
You can use this ignorance to your advantage by buying up shares at an incredible discount.
This growth stock is a proven winner
It’s not often that you can buy a proven growth stock at a reasonable valuation, yet at a lower valuation. That’s because once a growth trajectory has begun, the market rushes to price that proven potential into the stock.
This is partly what makes growth investing so challenging. You can buy and hold a stock that will increase its sales by 500% over your investment period. But if the market had priced in 600% growth, you could still underperform the market.
How do you get a discount on a proven growth share? Just look at a company that ignores the market, like Nu Holdings. And that could be why shares trade at just 32 times forward earnings, even as corporate earnings have skyrocketed in recent years.
The problem for Nu isn’t a lack of celebrity investors. Buffett owns just over $1.4 billion in shares through his holding company. Berkshire Hathaway – a position she has held since Nu’s initial public offering (IPO) in 2021. And through her company ARK Invest, Cathie Wood owns approximately 1.5 million shares of Nu, worth approximately $20 million.
The problem isn’t scale either. Nu currently has more than 100 million customers. The problem is simply that Nu operates in only three countries: Brazil, Mexico and Colombia. Unless you live in one of these countries, you’ve probably never heard of Nu and certainly never used its services.
What exactly is Now’s business? It is a fintech that offers a range of financial services directly to customers through their smartphones. This may not sound so innovative today, but in 2013 it was the case in Latin America.
At the time, a few stodgy incumbents controlled most of Latin America’s banking sector. Now it took the market by storm, offering more advanced services at a lower cost, instantly available to everyone through the device in their pocket.
There was clearly a lot of demand. Nu’s customer base grew from virtually zero to over 100 million in the first ten years of its existence. And new product lines such as the crypto trading platform surpassed 1 million users in the first month of use.
Suffice to say, the financials look good for Nu. Two years ago, sales just topped $2 billion. Today it is approaching $8 billion. Meanwhile, earnings have turned positive – a trajectory that will likely continue for years to come. For example, analysts expect profits to grow an average of 54% per year over the next five years.
Should You Follow Wood and Buffett in Nu Stocks?
Now has an incredible story, a proven track record and a reputable platform to build on. And its valuation – just 32 times forward earnings – is almost too good to pass up.
Just don’t think this will be a smooth ride. After the IPO, Nu actually shares lost 70% of their value during the first year of trading. Share prices have since fully recovered, but it’s a good reminder that high-growth stocks are often at the mercy of market volatility. The multiples assigned to these companies can vary widely depending on market sentiment.
Like Buffett and Wood, I’m a big fan of Nu Holdings as an investment. But like most stocks, patience will ultimately yield the greatest returns. Don’t buy unless you’re willing to ride out the down swings.
Don’t miss this second chance at a potentially lucrative opportunity
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We’re currently issuing ‘Double Down’ warnings for three incredible companies, and another opportunity like this may not happen anytime soon.
See 3 “Double Down” Stocks »
*Stock Advisor returns October 7, 2024
Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Berkshire Hathaway. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
Warren Buffett and Cathie Wood Agree: This Growth Stock Is a Buy was originally published by The Motley Fool
