Buffet Disposes of Nu Shares. Here's Potential Reason for You to Follow Suit.
Warren Buffet's Berkshire Hathaway has been offloading stocks over the last eight quarters, boosting its cash reserves to an all-time high. Buffet entirely exited investments like Floor & Decor and trimmed down positions in others, such as Apple. Despite reducing its Apple stake, Buffet emphasized that he'd never fully part ways with the tech giant.
Similar events transpired with Nu Holdings (NU -0.37%). Berkshire sold about 19% of its Nu shares in the third quarter, leaving a minimal 0.3% stake in Berkshire Hathaway's equity portfolio. While this move could potentially stir up speculation, it suggests that Buffet and his team still see value in Nu, encouraging guesswork about the rationale behind the small-scale sale.
Investors might find merit in keeping a hold of Nu shares, considering Buffet's ongoing investment in the company. Individual investors, for instance, might want to dive into Nu stock at this moment.
So, what's the hype around Nu?
An all-digital bank based in Brazil, Nu emerged in a market ripe for disruption. Brazil's banking sector, often marked by regulation and numerous obstacles to entry, faced challenges in serving a vast population. Nu aimed to disrupt this system by offering straightforward, low-cost financial services for the masses.
The strategy proved successful, appealing to both lower and higher-income demographics. Already boasting over half of Brazil's adult population as customers and gaining 1 million new clients per month, Nu's customer engagement rate stands at an impressive 84%. Its expansion into Mexico and Colombia has yielded even superior growth rates.
Its growing profitability is noteworthy. Despite reporting net income only from its Brazilian operations, Nu leverages its earnings to fuel growth in new regions while maintaining respectable profitability. Its revenues rocketed 56% year-over-year in the third quarter of 2024, resulting in a dramatic 83% increase in net income.
A moment of pause?
Nu's stock gained 24% in 2024, but swift market corrections in the final weeks of 2024 dimmed investor enthusiasm. Buffett's stock sale was one factor contributing to the volatility, and external elements like the unstable Brazilian economy and escalating inflation weighed on Nu's financial performance.
The Real's depreciation against the U.S. dollar also influenced Nu's revenue per active user (ARPAC) data. While ARPAC declined from $11.20 in Q2 to $11 in Q3, Nu managed to secure a 2% increase when considering currency-neutral adaptation.
Lastly, Nu's investment in a digital bank operating in South Africa and the Philippines raised eyebrows, potentially swaying an already uncertain investor sentiment.
While investing in a company situated in a volatile economy necessitates taking calculated risks, Nu's ability to weather these external pressures shows promise. Its robust credit business and expanding financial services platform demonstrate resilience in the face of economic turmoil.
At current, lower prices, Nu's potential for growth makes it an attractive pivot point. If you crave some gambling spirit and a long-term investment horizon, purchasing Nu stock might seem like a reasonable bet. If you own shares, following Buffet's continued investment in Nu stock is likely an encouraging sign.
Berkshire Hathaway's decision to sell a significant portion of its Nu Holdings shares might have sparked speculation, but Warren Buffet's ongoing investment in the company indicates that he still sees value in Nu's offerings. Investors might want to consider holding onto Nu shares or even buying them given the company's successful disruption of Brazil's banking sector and its impressive growth figures. The fees associated with nu's digital banking services have been a key factor in its ability to maintain profitability despite operating in a volatile economy.
