There's a simple reason people listen to Warren Buffett's advice.
It's not because he's witty or even because he has experience, although those are both true. It's because he has beaten the market. Consider the performance of his holding company, Berkshire Hathaway (BRK.A 0.55%) (BRK.B 0.50%), over the past 10 years versus the S&P 500:
Buffett himself counsels investors to invest in index funds that follow the S&P 500. But if you would have invested in Berkshire Hathaway stock instead, you'd have a lot more money right now.
Buffett's investing model leans toward value investing, not growth investing. But he owns some stocks that could seriously explode in a 2023 bull market.
1. A competitive player in the streaming wars
If you think the streaming wars are only between Netflix and Disney, you're missing a huge opportunity. Paramount, formerly knows as ViacomCBS, is smaller than those two names, but it's growing much faster.
Paramount owns some of the biggest names in media and entertainment, including its namesake film studio and counterpart streaming network, plus the CBS network, many popular cable channels, the Pluto streaming network, and others.
Revenue increased 94% year over year in the third quarter, and it demonstrated many other signs of strength.
Pluto remained the No. 1 free ad-supported network with 72 million monthly active users, and Top Gun: Maverick has been the highest-grossing film of the year.
With decades of content available and a robust content creation team, Paramount is well-positioned to churn out more hits to generate revenue and populate its streaming networks.
One feature that stands out starkly about Paramount stock is its low valuation. It trades at less than four times trailing 12-month earnings, which is extremely cheap. Stocks that trade that cheaply usually do so for a reason.
For Paramount, that may be due to growing competition with much larger rivals and a reliance on its traditional networks, which are in decline.
Buffett is a big fan of undervalued stocks.
So when considering why Paramount trades cheaply, that's a vote of confidence that this is not a value trap, but an opportunity. Buffett doesn't own Netflix or Disney. Paramount also pays a generous dividend that yields a fat 5.6% at the current price, another feature Buffett likes.
Paramount is the smallest of the big players, with less than $7 billion in Q3 2022 revenue. It's also the fastest-growing, by far. As Paramount grows its revenue and customer count, it could turn out to be a huge success.
In a bull market, Paramount stock could seriously take off.
2. A high-growth fintech with enormous opportunity
Buffett has been a supporter of Nu Holdings, a digital Brazilian bank, since before it went public. It invested $500 million when Nu was still a private company in June 2021, a few months before its initial public offering (IPO).
Nu works through its digital enterprise called Nubank, and it's growing like a weed. It's a fintech superstar that was created in its home headquarters of Brazil to break through the entrenched traditional banking system that the company's founders didn't see as customer-first.
Nu's leaders started the company to provide customers with easy access to digital financial services. One of its tag lines is "fighting complexity to empower people."
Revenue increased 171% in Q3 2022, and monthly average revenue per active customer (ARPAC) increased 61%. Net interest margins increased to 11.1%, more than offsetting increased delinquencies due to higher interest rates.
Customer count in Brazil grew 41% over last year to 66.9 million, and that was even faster in the newer markets of Mexico and Colombia.
But while it has already captured 39% of the market in Brazil, Nu still has plenty of runway there, in addition to new and as-yet unentered markets. It's also increasing revenue and ARPAC through robust cross-sells, a cornerstone of its business model.
The potential here is enormous, but until recently, Nu stock traded at a high valuation.
Today, with the stock down 62% since its IPO last year and the revenue much higher, the stock looks more reasonable with a price-to-sales ratio of 7.6. That's still expensive.
However, those with a higher risk tolerance may see that as justifiable for a company demonstrating such high growth and with so much potential. If the market turns around next year, Nu could be a huge winner.