You might think Warren Buffett and Cathie Wood couldn't be more different.
One is a staunch proponent of value investing. The other is exclusively focused on growth stocks with the potential to generate huge returns. Both investing styles have their merits, but they're usually seen as opposite ends of the spectrum.
But both Buffett and Wood have one very important thing in common. They both maintain very long-term outlooks. And that's often the key to success in investing.
Investors interested in great long-term investments may want to take a closer look at the four stocks held by both Buffett's Berkshire Hathaway and Wood's Ark Invest funds.
1. Nu Holdings
Brazilian-based Nu Holdings (NU 1.66%) has grown to become a leading financial institution in its home country while expanding to Mexico and Colombia.
Nu counts over 84 million customers in Brazil, more than half the country's population. What's more, it's still growing quickly in the emerging market. It added 4.6 million new customers in the third quarter and grew 26% year over year.
Management intends to follow the same path to growth in Mexico and Colombia, where it's still in the very early stages. Nu counts 4.3 million customers in Mexico and 800,000 customers in Colombia.
Nu offers an expanding set of financial services beyond banking, including credit cards, personal loans, insurance, and crypto trading. And the ability to sell multiple services to its customers is starting to produce leverage in the business. Adjusted net income increased from $63 million in the third quarter of 2022 to $356 million in the third quarter last year. While revenue growth is expected to slow, the operating leverage of the business is just starting to come through. And if it can grow in either Mexico or Colombia with the success it had in Brazil, it should see substantial growth in its bottom line.
2. StoneCo
Another Brazilian fintech favored by both Buffett and Wood is StoneCo (STNE 5.01%). The company offers small and medium-sized businesses payment-processing services as well as other solutions for growing businesses.
StoneCo suffered a significant setback at the onset of the COVID-19 pandemic. It had been using inaccurate data from Brazil's national registry system to determine the creditworthiness of its small-business loans. That mishap was compounded by the stress the pandemic put on its clientele, which resulted in a lot of loan defaults.
But management recovered thanks to the strength of its payments business. Active payments clients reached 3.3 million in the third quarter, up 41.7% year over year. Importantly, it's seeing stronger gross additions and lower customer churn to drive those results.
As the business scales, it's seeing tremendous operating leverage, driving bottom-line growth. Adjusted net income improved four-fold in the third quarter with its profit margin expanding 3 percentage points. Management sees adjusted net income growing at a 31% compound annual growth rate from 2024 through 2027.
Despite the increase in the stock price over the last few months, those growth prospects make the stock attractive still.
3. BYD
BYD (BYDDY 4.08%) (BYDD.F 4.71%) is arguably the largest electric vehicle manufacturer in the world. The Chinese company closed 2023 by selling 340,178 cars in December, including 190,754 all-electric vehicles, more than anyone else that month.
BYD has seen strong gross margin improvements as it scales its EV manufacturing. And while other manufacturers have seen pressure on its pricing, BYD's managed to keep its pricing relatively stable. In fact, it's seen faster growth in sales of its newer models, which sport higher-than-average gross margins.
BYD is well established in China, but it has its sights set on international markets, too. Exports accounted for over 200,000 of BYD's unit sales last year, about 8% of its total. Exports can be two to three times as profitable as local Chinese sales, so growing its international presence could be a major growth catalyst for the automaker.
With shares trading at a price-to-sales ratio below 1 and a P/E ratio below 17, BYD looks like a great value stock with plenty of growth ahead.
4. Amazon
Amazon (AMZN 3.43%) needs no introduction. It's the online retail and cloud computing giant that's worth over $1.8 trillion.
Amazon closed 2023 with a stellar earnings report, which showed accelerating sales growth across nearly every reporting segment from online stores to advertising to its cloud computing business. Moreover, it's displaying strong margin expansion, particularly in North America, as it benefits from its revamped logistics network.
After several years of massive investments in its fulfillment network, Amazon is starting to reap what it sowed. It took its foot off the gas on capital expenditures in 2023, which led to a substantial increase in free cash flow for the business.
Amazon has historically worked through periods of heavy investment where it uses lots of free cash flow and then comes out even more profitable and generates more cash than ever before. That was the case in 2023. As it heads into 2024, capital expenditures will ramp up again, but only modestly. As operations continue to grow, investors should expect another year of strong free cash flow.
Shares of Amazon are expensive by traditional valuation metrics, but the potential for the business to keep growing could make the stock worth the price.
