Warren Buffett is known as a value investor. But he has also identified some of the best growth stocks of the past century. Right now, his holding company, Berkshire Hathaway, has more than $1 billion invested in what I believe could be the top-performing stock in his portfolio during the next decade. If you want to add Buffett's best stock pick to your portfolio, this looks like your chance.
This is why Buffett loves this monster growth stock
Nu Holdings(NYSE: NU) went public in 2021. Right away, for a little more than $9 per share, Berkshire invested nearly $1 billion. It wasn't hard to see what the Oracle of Omaha and his team might have liked about Nu.
Nu is considered a fintech business. That is, it combines the huge addressable markets of financial businesses with the rapid expansion rate of a growth stock. The company, operating in Brazil, Colombia, and Mexico, isn't widely known by most retail investors. But it's attracted the attention of several major funds, including Sequoia Capital -- one of the most iconic venture capital firms, which backed the business when it first started roughly a decade ago.
Nu's business model is simple: Provide financial services to Latin American residents directly through their smartphones. Few competitors were doing this at the time, opting instead to deliver services through a vast network of physical branches. This added extra expenses to the competition's business models, and also hindered their ability to innovate and grow rapidly. Nu, for instance, was able to acquire 1 million initial customers for its crypto trading platform in the first month after launching the service. Meanwhile, very few of its competitors were even thinking about pursuing a crypto platform of their own.
Nu's agile business model has allowed it to accumulate more than 100 million customers in its first decade of operation. Nu's sales growth continues to be above 50% per year despite its market cap surpassing $70 billion. And there are two reasons to believe Buffett will continue to hold on for the long haul. First, there are more than 650 million Latin American residents, and Nu has only entered three of its 30-plus potential markets. Its initial markets have the best economics and demographics, but it's clear that the company has a multidecade runway of growth ahead of it. Second, the company just reached profitability, and the shares look cheap relative to their long term potential. The stock trades at just 25 times forward earnings despite analysts forecasting 54% annual earnings-per-share (EPS) growth during the next five years.
Nu's growth trajectory is just getting started, and I expect Buffett to remain invested for the long term. But if you want to jump in, make sure you use a specific, time-tested investment strategy discussed below.
Use this proven investment strategy for betting on Nu Holdings
If you want to make money with Nu stock, stick with dollar-cost averaging. This investment strategy is simple but powerful. Essentially what it does is purchase a set dollar amount of shares on a regular basis. For instance, you could purchase $50 of Nu stock every other month. When dealing with volatile stocks like Nu that have long term promise, dollar-cost averaging is the way to go for two reasons.
First, dollar-cost averaging ensures that you're always putting more money to work. After all, it's not just your initial investment that creates long-term wealth, but all the follow on investments you make over time. Second, dollar-cost averaging makes sure that you buy more shares when the stock price weakens. If you had employed this strategy for Nu in the past, you would have bought stock at $10 per share. But you would have also added more stock to your portfolio when shares were priced below $5. On average, your purchase price would have been much lower than today's share price.
Buffett is clearly a long term-fan of Nu. And dollar-cost averaging, even with small amounts of money at first, can help you build an attractive position over time capable of creating long-term wealth.
Should you invest $1,000 in Nu Holdings right now?
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
