The investing landscape is often a challenge for those who are new to trading stocks. There's a steep learning curve when it comes to the ins and outs of the financial metrics that often drive the markets to make trades. Worse, they may be unprepared for the emotional aspects of investing, like feelings that can easily induce investors to make mistakes like buying high and selling low.
One way to guard against such issues is to focus on buying fairly valued stocks that are easy to understand. It also helps if they have growth potential that is likely to outpace the S&P 500.
To this end, new investors would be well served to consider two growth stocks that fit this criteria: Nu Holdings (NU 1.66%) and T-Mobile US (TMUS -0.06%). Here's why.
1. Nu Holdings
American investors may not be aware of Nu because it is not a U.S. company. It may also throw off new investors because they are unfamiliar with the financial workings of Latin America, a region where tens of millions of people across numerous countries lack access to bank accounts and credit cards.
Nu is trying to make a name for itself in Latin America by expanding access to the financial system there, giving millions in Brazil, Mexico, and Colombia their first credit cards. So successful is its approach that 51% of Brazil's adult population has an account with Nu. That success may partially explain why the Brazil-based digital bank has attracted the attention of Warren Buffett's Berkshire Hathaway.
It may also help that it seeks to replicate this success in Mexico and Colombia. These two countries account for around 5 million of Nu's 89 million customers, and early signs indicate it can benefit from the same rapid growth in these countries that made it successful in Brazil.
Additionally, the fintech stock's growth potential and valuation should more than make up for what Nu loses in familiarity. In the first nine months of 2023, Nu reported revenue of $5.6 billion, a 68% increase from the same period last year. Also, this rapid growth helped turn it profitable, as it earned a net income of $670 million in the first three quarters of 2023.
Investors have started to notice this growth, as the stock price is up nearly 150% over the last year. Despite that gain, the stock sells at a forward price-to-earnings (P/E) ratio of 23. This earnings multiple is a valuation that clues investors into whether the stock is selling at a fair price. Given that the S&P 500 forward P/E ratio is currently 21, Nu stock is selling only a bit higher than the broader market average. Given the potential for Nu to generate rapid growth, the two indicators together show a real indication for market-beating returns ahead. That should help any neophyte investor start their investing journey on the right foot.
2. T-Mobile
At first glance, a main competitor of value stocks like AT&T and Verizon Communications does not look like a growth stock. Indeed, with the smartphone business having matured, these three companies will have to spend heavily just to hold on to current customers and benefit from a modest growth rate.
Nonetheless, T-Mobile has some critical advantages over its peers. It began in 1994 as VoiceStream Wireless. Being a younger company means it has far fewer legacy costs (pension plans or lead-lined cables installed decades ago, for instance) to deal with. Lower costs mean it has more funds to invest in its network and compete by offering lower service costs. That approach has attracted customers, and as recently as the third quarter of 2023, T-Mobile claims the highest net customer additions in the industry.
It also helps that T-Mobile did not have a dividend to account for before it made its first payout in December. Still, since the dividend yield on the $2.60 per share annual payout is only about 1.6%, it does not have the higher payout costs of its peers.
Admittedly, the $58 billion in revenue recorded for the first three quarters of 2023 fell 2% year over year as sales of equipment and prepaid services slowed. But thanks to lower operating costs, the net income in the first nine months of 2023 was $6.3 billion, up from $1.1 billion in the same year-ago period.
T-Mobile's stock price growth was just under 10% over the last year -- slow, considering the 140% gain for the telecom stock over the previous five years. Nonetheless, its forward P/E ratio has fallen to 16, a record low and well below the S&P 500 average. That comes as analysts forecast 248% income growth for 2023 and 37% this year.
Given the state of T-Mobile's business, new investors should take notice. Ultimately, the stock offers a well-understood service, a long-term track record of market-beating gains, and a low valuation that should serve new investors well.
