Billionaire money managers often have strikingly different approaches to investing. Consider Warren Buffett, whose holding company, Berkshire Hathaway, only owns about 45 stocks at a given time, and Israel Englander, head of Millenium Management, who owns several thousand. Add someone like Cathie Wood into the mix, who runs investing firm Ark Invest and buys disruptive tech stocks for Ark's exchange-traded funds (ETF), and you have three different investing mindsets.
What's something they all have in common? They all own Amazon stock, which is a no-brainer stock for any portfolio, and they also all own young upstart Nu Holdings(NYSE: NU) stock.
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. It now owns 107,118,784 shares, or 2.2% of the company, although it makes up a tiny 0.5% of Berkshire Hathaway's equity portfolio. Cathie Wood owns 1,238,918 shares as part of Ark's Fintech Innovation ETF, accounting for 2.1% of the portfolio. Millennium owns 39,192,266 shares of Nu, which is a 371% increase in his position from last quarter.
Let's see why three very different money managers are all excited about this growth stock.
Disrupting traditional banking in a huge market
Nu is an all-digital bank based in Brazil. It has also recently entered Mexico and Colombia, but they're small businesses for now. It's growing quickly in every way, and it has been reporting incredible results every quarter since it went public.
It added 5.2 million customers in the 2024 second quarter, reaching a total of 104.5 million. Most of them are still in Brazil, where it has 95.5 million, or more than half of the adult population. Nu was a challenger when it premiered just over 10 years 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 onto the scene that a large percentage of the population didn't even have a bank account. Nu has a leg up on the legacy banks since it was built to be flexible and agile, and customers are flocking to its platform. That's something Buffett loves.
That leaves about 9 million customers in its other two markets, 7.8 million of whom are in Mexico, and Nu's performance in Mexico has already surpassed how it did in Brazil at a similar growth stage. It added 1.2 million customers in Mexico in the second quarter, or a 15% increase over last quarter.
It's not hard to imagine how this is affecting revenue and scale. Revenue increased 65% year over year in the second quarter, a typical increase, but the membership growth is only half of the story. The other half is that members continue to use more services on Nu's 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 was up 30% year over year in the second quarter.
Big scale, large profits
Nu was a riskier play when it went public, as many initial public offering (IPO) stocks are, because it wasn't net profitable on a generally accepted accounting principles (GAAP) basis. But it has reported GAAP net income for six straight quarters, and it's been growing phenomenally.
As an all-digital bank that skips costly real estate and relies on technology in place of human interaction, it has operating leverage. Its cost to serve has remained relatively stable despite its growth. Net interest income increased 77% year over year in the second quarter, with the margin widening from 18.3% to 19.8%.
Image source: Nu Holdings.
A steal of a deal
As you might imagine, Nu stock is riding high, and it's nearly doubled during the past year. At the current price, it trades at a forward, 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 forward P/E of 32.
The billionaires who are scooping up Nu stock are onto something here, and although I often caution investors about following billionaire stock pickers into their institutional holdings, Nu looks 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 has positions in Nu Holdings. The Motley Fool has positions in and recommends Amazon and Berkshire Hathaway. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
