It looks like the Federal Reserve's visions of cutting interest rates were a bit premature. Inflation is still high, and it doesn't seem like there's going to be an early expiration date on high interest rates.
Investors, shoppers, and others are settling in for what might be an extended stay, and the market's high-flying performance that reached an all-time high earlier this year has stopped in its tracks. The S&P 500 is up an uninspired 5.5% year to date, and investors are waiting for good news about the economy.
Some of that news has been arriving with several solid company earnings reports. It's earnings season, and many companies are reporting strong results despite the uncertainty in the economy. It's a great way to get insight into the companies that are worth your investing dollars.
Going through Warren Buffett's picks is an excellent starting point. Visa (V 0.92%), American Express (AXP 0.55%), and Nu Holdings (NU 1.57%) are three top stocks worth exploring right now.
1. Visa: The perennial winner
Investors often cite Visa's strength as an indicator of the overall economy. When the economy is growing, so is Visa, and vice versa. Since the economy grows more often than not, Visa performs well an overwhelming majority of the time.
That makes sense. Visa is the largest credit card network in the world, with 4.4 billion cards in circulation, more than $15 trillion in trailing-12-month payment volume, and partnerships with 14,500 financial institutions. When shoppers make purchases, Visa gets a fee every time one of its cards is swiped.
NYSE: V
Key Data Points
Despite the current economic volatility, Visa is reporting strong performance. In the 2024 fiscal second quarter, revenue and net income both increased 10% year over year. It expects that to continue for the remainder of the year, guiding for revenue to increase in the low double digits for both the third quarter and the full year.
But it's more than the simple swipe that makes Visa so compelling. It has built up its moat through acquisitions and partnerships, ensuring that it keeps its top spot. It has developed robust technology and digital capabilities, and as much as it's the epitome of the traditional payment network, it's also a competitive fintech leader.
Visa is doing well despite economic uncertainty and will do even better when the economy gets back on track. Now is a great time to buy and benefit from a potential economic recovery.
2. American Express: The top value stock
American Express is a Visa competitor but has a different model, operating a "closed-loop" system. Instead of partnering with financial institutions that underwrite the credit part of a purchase, American Express acts as its own underwriting bank. It also offers a large suite of financial services for individuals and businesses and has a target market of affluent customers who pay annual fees for most of its cards.
In its core credit card processing business, American Express' performance mirrors the economy. But it has the added edge of a consumer base that has more discretionary income to spend at any time and is more resilient than the mass shopper when there's pressure. It also has more revenue streams than Visa, which could be one of the reasons it's one of Buffett's favorite stocks.
NYSE: AXP
Key Data Points
Revenue increased 11% year over year in the 2024 first quarter, and net income jumped 34%. Management is guiding for similar results for full-year revenue growth and about a 15% rise in earnings per share.
American Express and its stock will benefit from an improved economy in much the same way as Visa will. Its banking segment will also get a boost when interest rates are lowered.
3. Nu: The incredible growth stock
Nu is the rare Buffett growth stock and has been demonstrating phenomenal growth since it went public in 2021. It's a Brazil-based bank that's all digital, and its easy-to-use interface and low fees have been attracting millions of new customers.
The bank's headquarters are in Brazil, where more than half of the adult population is already on its platform. It's also in Mexico and Colombia, where it's just getting started and growth rates are even higher.
Customer accounts increased by 19.3 million year over year to 93.9 million in the 2023 fourth quarter. Revenue increased 57% on a currency neutral basis, and net income more than quadrupled to $361 million.
NYSE: NU
Key Data Points
The bank grows through new customers but also has a strategy to upsell and cross-sell to customers with its variety of financial products and services. Average revenue per active customer (ARPAC) continues to steadily increase, from $8.20 to $10.60 year over year in the fourth quarter. As these customers engage with Nu's platform at higher rates, profitability increases.
Nu is a young company and has massive growth potential. Along with new markets, new customers for its core products, and more product adoption, it's also branching out to target a more affluent customer base. There are tons of opportunities, and the bank is working efficiently to capture them.
The bank reports 2024 first-quarter earnings on May 14, and its stock could jump on a solid performance. But don't buy Nu stock for the short-term jump -- buy it for its compelling long-term opportunities.
