Berkshire Hathaway bought and sold several stocks in the 2023 fourth quarter, completely selling out of four positions. As usual, Chief Executive Officer Warren Buffett extolled his favorites, American Express and Coca-Cola, and he added Occidental Petroleum to that list as a stock he'd probably never sell.
But while they may all deserve accolades, I don't think any of them will be Berkshire's best-performing stock over the next five years. I would give that status to one of Berkshire Hathaway's small positions that he doesn't talk about, Nu Holdings (NU 1.90%).
A different kind of Buffett stock
Nu Holdings operates a digital bank under the banner NuBank in its home market of Brazil, and it's more recently expanded into Mexico and Colombia. Berkshire Hathaway first invested in Nu in 2021, before it became a public company. Today, it owns 2.3% of Nu's stock, which accounts for a tiny 0.3% of Berkshire's total equity portfolio.
In some ways, Nu seems like a classic Buffett stock. It's a bank stock that's building deposits and is flush with cash, which are typical Buffett-stock features. It's also meeting a need in its market, breaking down financial barriers with easy-to-use products. As it captures market share, it has long-life potential to play a role in Latin American finance.
NYSE: NU
Key Data Points
In other ways, it doesn't quite fit the Buffett mold. It's young and just becoming profitable, and it operates in a region known for economic instability. These are all risk factors.
But one thing you can't deny is that it's growing at an incredibly fast pace. As of the end of Q4 2023, Nu has 95 million customers, 19 million more than last year. That includes 53% of the Brazilian adult population.
These are customers who are engaged, with an 83% activity rate (defined as customers who have generated revenue over the past 30 days divided by total customers), a number that continues to increase. That indicates that Nu is offering products that meet its customers' needs. As more people get on the platform and engage, average revenue per active customer continues to increase. It rose from $8.20 last year to $10.60 this year in Q4.
Even more impressively, it's been able to keep its costs in check as it scales, leading to improved profitability. Cost to serve per active customer stayed at $0.90 in Q4, not moving from last year. Although growth is strong, with revenue up 57% year over year in Q4, there's been a shift as growth slows and profits head higher.
Image source: Nu Holdings.
Harnessing new opportunities
There are many reasons to imagine these trends continuing. Even the way it's operating now, Nu is adding customers, upselling new products, and generating profits. These will lead to organic growth over the next few years.
But it's not stopping there. It's growing faster in its new markets, which should lead to more meaningful increases. It targets the mass consumer who's looking for a better deal, but it has a strategic objective to reach an upmarket clientele. Its upmarket credit card volume increased 104% from last year.
Its credit business is flourishing, which is leading to rising net interest income. Loan growth in Brazil accelerated in Q4, increasing from $900 million to $2 billion, and it had more than $1 billion in deposits in Mexico within seven months of launching. The credit card portfolio increased 44% year over year, while personal loans increased 76%.
It's already outperforming
Nu stock gained more than 100% in 2023, and it was probably Buffett's best-performing stock. It's already up about 33% so far this year, trouncing the market.
Nu stock could explode over the next five years, outperforming the market and every other Buffett stock. Buy now before it climbs further.
