Institutional investors often have advantages over retail investors because they get opportunities to invest earlier and usually at better prices and valuations, whether it's before a company goes public in the private markets or right before an initial public offering. But currently, investors have the opportunity to invest in some stocks at the same prices that Warren Buffett and his company Berkshire Hathaway got in at. Here are two stocks that currently offer this opportunity.
1. Nu Holdings
Buffett and Berkshire once again turned their attention to Brazil and Latin America when they invested in the digital bank Nu Holdings (NU 4.26%), which went public at the end of 2021. Berkshire first invested $500 million when the company was private and valued at about $30 billion. But Berkshire then plowed $250 million more into the company when it went public at the price of $9 per share, or a roughly $41 billion market cap. As of this writing, shares of Nu trade at about $7.70 per share.
Nu has significantly disrupted the banking industry in Latin America, which can be tough to access for everyday consumers and has high fees. Nu first came out with a credit card with no annual fees and then continued expanding its products from there, while also offering a sleek front-end experience that has made it possible for millions of customers to get their first-ever credit card or bank account. Nu has already acquired nearly 54 million customers, which is incredible, and has the lowest customer acquisition cost of almost any fintech I know of.
While Nu is not yet profitable, it generated $1.7 billion of revenue in 2021 and is expected to generate close to $3 billion of revenue this year. There has been some concern over how much revenue per customer Nu can generate with its low-fee business model, but more mature cohorts of customers are also showing greater revenue per customer.
I stayed away from Nu when it got up to a $50 billion market cap but I took a small position when it dipped below $30 billion. I love the growth opportunity here but think this is a stock that will see near-term volatility, so keep an eye out for a lower entry point. Still, with the stock now at about a $36 billion market cap, you can still get it cheaper than Berkshire did in its second purchase during the IPO.
2. Bank of New York Mellon
Bank of New York Mellon (BK -0.19%), one of the lesser-discussed stocks in Buffett and Berkshire's portfolio, is a great stock for investors to consider, especially in the current environment. It doesn't exactly surprise me that Bank of New York Mellon gets overlooked because it's not the most exciting of businesses, even as far as the banking sector goes. As one of the major custodian banks in the world, Bank of New York Mellon's businesses mainly includes investment and wealth management, securities services, and market and wealth services.
There are a few reasons I like Bank of New York Mellon. For one, it benefits from rising interest rates. Bank of New York Mellon notes in its annual report that a 1% immediate hike to the Federal Reserve's benchmark lending rate, the federal funds rate, would boost net interest income, the money the bank makes on interest-earning assets, by about $840 million over the next year.
Additionally, as a big investment manager, Bank of New York Mellon has been waiving fees on money market funds because these funds have been paying out very small returns in the low-rate environment that set in at the onset of the pandemic and continued up until very recently. As rates go up, Bank of New York Mellon will be able to reinstate the fees it makes on its money market funds.
Bank of New York Mellon is also a very safe kind of bank to own should there be a recession because it doesn't hold nearly the same amount of loans as other big banks. That means it isn't as susceptible to loan losses.
Finally, Bank of New York Mellon has been wading more and more into the crypto world and last year formed a digital assets division.
In 2017, Buffett and Berkshire increased their stake in Bank of New York Mellon by more than 50%. They bought shares for an average price of $47.79, which is less than Bank of New York Mellon's current share price of about $49.60. However, Bank of New York Mellon currently trades at a smaller valuation in terms of price-to-tangible book value than when Buffett and Berkshire invested in 2017.