Billionaire money managers often have strikingly different approaches to investing. Take Warren Buffett, whose holding company Berkshire Hathawayowns only about 45 shares at any given time, with Israel Englander, head of Millenium Management, owning several thousand. Add someone like Cathie Wood to the mix, who runs investment firm Ark Invest and buys disruptive technology stocks for Ark’s exchange-traded funds (ETF), and you have three different investment mindsets.
What do they all have in common? They all own it Amazon stocks, which is a no-brainer stock for any portfolio, and they also all own a young startup Now Holdings (NYSE: NOW) stock.
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Buffett, or someone on his team, first recognized Nu’s potential when he invested $500 million in the company before it went public in 2021. The company now owns 107,118,784 shares, or 2.2% of the company, although it only makes up just shy of 0.5% of Berkshire. Hathaway’s stock portfolio. Cathie Wood owns 1,238,918 shares as part of Ark’s Fintech Innovation ETFaccounting for 2.1% of the portfolio. Millennium owns 39,192,266 shares of Nu, which is an increase of 371% from the last quarter.
Let’s take a look at why three very different money managers are all excited about this growth stock.
Now a fully digital bank is based in Brazil. It also recently entered Mexico and Colombia, but for now they are small businesses. It’s growing rapidly by all accounts, reporting incredible results every quarter since it went public.
In the second quarter of 2024, 5.2 million customers were added, for a total of 104.5 million. Most of them are still in Brazil, where it has 95.5 million people, or more than half of the adult population. Now was a challenger when it premiered just over a decade ago, offering a simple and easy-to-use alternative to the rigid banking services offered by a handful of large, traditional banks. Banking was so complicated and expensive before Nu came on the scene that a large percentage of the population didn’t even have a bank account. Now has an edge over traditional banks since it was built to be flexible and agile, and customers are flocking to the platform. That’s something Buffett likes.
That leaves approximately 9 million customers in the other two markets, of which 7.8 million are in Mexico, and Nu’s performance in Mexico has already surpassed Nu’s performance in Brazil at a similar stage of growth. It added 1.2 million customers in Mexico in the second quarter, or a 15% increase from the previous quarter.
It is not difficult to imagine what impact this will have on turnover and scale. Revenue rose 65% year over year in the second quarter, a typical increase, but membership growth is only half the story. The other half is that members continue to use more services on the Nu platform, leading to higher revenue per user and higher overall revenue growth. This is a strong signal of consumer satisfaction and long-term potential. Average revenue per active user increased by 30% year-on-year in the second quarter.
Now was a riskier play when it went public, like many initial public offering (IPO) stocks, because it wasn’t net profitable under generally accepted accounting principles (GAAP). But it’s been reporting GAAP net income for six straight quarters, and it’s grown phenomenally.
As a fully digital bank that forgoes valuable real estate and relies on technology instead of human interaction, it has operational leverage. Despite the growth, service costs have remained relatively stable. Net interest income rose 77% year-on-year in the second quarter, with the margin widening from 18.3% to 19.8%.
As you might imagine, Nu stock is at a high, having nearly doubled in the past year. At its current price, it trades at a one-year price-to-earnings (P/E) ratio of less than 26, which looks cheap compared to other growth stocks. Amazon, the other stock these three money managers own, trades at a price-to-earnings ratio of 32.
The billionaires scooping up Nu stock are on to something here, and while I often caution investors against following the billionaire stock pickers in their institutional investments, Nu seems like a clear winner for the growth-oriented investor.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil holds positions in Nu Holdings. The Motley Fool holds and recommends positions in Amazon and Berkshire Hathaway. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
Billionaire Israel Englander just tripled his investment in this stock that Warren Buffett and Cathie Wood also own. originally published by The Motley Fool
