The market is losing ground after coming very close to ending the current bear market. The S&P 500 was up almost 20% in 2023 at the end of July, less than 4% off its previous high in early 2022. It has declined about 5% since the beginning of August as retailers deliver some dismal reports reflecting the state of the economy and the Federal Reserve went back to raising interest rates, signaling that inflation is still a major concern.
Investor enthusiasm is still holding up the market, and a bull market is coming eventually. To get ready, buy some excellent stocks that could power your performance for the years ahead. Warren Buffett's portfolio is a great place to get inspiration, and Nu Holdings (NU 1.66%) and Visa (V -0.23%) are two great choices.
1. Nu: The growth stock
Nu is a Latin American fintech company based in Brazil that's been making waves in the two other countries it serves (Colombia and Mexico). It has been posting soaring growth over the past few years and has become profitable as well, and there's no end in sight to its opportunities.
There are two ways it grows: New customers, and upselling existing customers. It's been incredibly successful with both of these levers, leading to exponential growth. In the 2023 second quarter, Nu added 4.6 million customers, or 18.4 million year over year -- a 28% increase, for a total of 83.7 million. Revenue increased 60% from a year earlier to $1.9 billion.
What stood out in Nu's report was that average revenue per active user surpassed $9 for the first time. This is a result of upselling and cross-selling products and services to existing customers. Nu works under the banner of NuBank, but it's become so much more than a bank, like many digital financial companies today. It offers a large suite of products from traditional bank accounts to investing accounts, insurance, and even cryptocurrency trading. These other services are growing even faster than core services. In Q2, NuInvest active customers increased 121%, while NuCrypto active customers were up 160%.
Higher organic product adoption is also leading to higher profit generation. In Q2, it swung from a loss last year to $225 million in net income, which was 50% more than the prior quarter, its first profitable quarter.
The opportunity here is incredibly rich, so it's not surprising that Nu sports a premium valuation of more than 8 times trailing 12-month sales. It's high enough that despite the positive Q2 results, the stock price fell after the report. The shares fell more after reports that the chief executives sold shares in the company for the first time since its 2021 initial public offering. This stock offers incredible growth opportunities, so investors can use this as a chance to buy on the dip.
2. Visa: The value stock
Visa isn't feeling the chill of the economy as it continues to record growth in revenue and net income. It's the largest credit card processing network in the world, and while its core business is fees from merchants who accept Visa credit cards, it's broadening its reach in crucial ways. These other ventures protect its main business and carve out new growth avenues, ensuring that Visa is on top of its game.
In the 2023 third fiscal quarter ended Jun. 30, revenue increased 12% over last year, driven by cross-border payments. Some may feel like the pandemic is a distant bad memory, but in some parts of the world, people are still getting back to previous spending habits. Cross-border payments increased 17% in Q3.
Visa enjoys superior margins due to its large scale and asset-light business. Earnings per share increased 25% year over year in Q3, and the profit margin was 52%.
Some of Visa's value-added services include consulting, analytics, and risk management. This kind of diversification amplifies its brand and brings in more clients that ultimately lead to more revenue from Visa's core payments business. It's also a faster-growing segment, increasing 19% year over year in Q3.
Like many great value stocks, Visa pays a dividend. Its yield isn't impressive, at only 0.75% right now, but it's growing quickly, increasing 350% during the past 10 years.
Visa stock is trading at about 32 times trailing 12-month earnings, which isn't exactly cheap, but it's reasonable considering Visa's earnings generation. It's also around the cheapest it's been in years. Visa stock has soundly outperformed the market for many years, and now is a great time to buy.
