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2 Fintech Stocks Warren Buffett and Cathie Wood Both Own

Barchart - Tue Nov 7, 2023

The process of equity investing can be quite tricky, as you need to identify a handful of long-term winners from a basket of roughly 6,000 listed stocks (and counting) in the U.S. However, you can simplify this process by following the money moves of noted investors such as Warren Buffett and Cathie Wood. 

Warren Buffett is a value investor and among the most popular investors globally. Also called the Oracle of Omaha, Buffett runs Berkshire Hathaway (BRK.B), which is one of the largest companies in the world. He's known for a focus on stable, consumer-driven companies and dividend-paying stocks - think Coca-Cola (KO).

On the other end of the spectrum, Cathie Wood has gained popularity in recent years due to the momentum-driven exchange-traded funds (ETFs) launched by her company, Ark Invest. Unlike Buffett, Wood's investing focus leans more toward “disruptive” tech companies and growth-fueled names - think Tesla (TSLA).

While the two big-name investors don't typically share too many portfolio holdings in common, there are two fintech stocks currently owned by both Warren Buffett and Cathie Wood - Nu Holdings (NU) and StoneCo (STNE). Notably, both of these companies are based out of Brazil - where the central bank recently started cutting rates from their recent highs, creating a more favorable backdrop for the finance sector. Let’s see if you should follow suit with Wood and Buffett by adding these stocks to your portfolio. 

Is Nu Holdings Stock a Good Buy Right Now?

Valued at $39 billion by market cap, Nu Holdings stock is down 28% from all-time highs. However, the Warren Buffett stock has also surged 108% year-to-date, generating outsized gains for investors who brought the dip. 

NU accounts for 2.13% of Wood's Ark Fintech Innovation ETF (ARKF), and 0.3% of Buffett's Berkshire portfolio, as of the most recent data.

Nu is a digital bank with customers in Brazil, Columbia, and Mexico. In Q2 of 2023, its number of customer accounts grew by 28% year over year to 83.7 million. After establishing a strong user base in Brazil (where it has captured 49% of the country’s adult population), Nu Holdings is expanding its reach in other Latin American markets. 

Unlike most other digital banks, which remain unprofitable, Nu has reported a positive net income for four consecutive quarters. Due to a highly engaged user base, Nu’s ARPAC (average revenue per user) has increased to $9.30 in Q2, up from $7.80 in the year-ago period. 

Nu Holdings continues to expand its portfolio of products and services, allowing the company to increase revenue from $359 million in 2019 to $2.97 billion in 2022. The company is expected to further increase revenue by 59.5% to $7.64 billion this year and by 25.9% to $9.62 billion in 2024, according to consensus estimates. 

Comparatively, its adjusted earnings are forecast to improve from $0.04 per share in 2022 to $0.35 per share in 2024. So, NU stock is priced at 24 times forward earnings, which is not too expensive for a high-flying growth stock

Out of the nine analysts tracking NU, five recommend “strong buy,” and four recommend “hold.” The average price target for Nu is $8.58, which is nearly flat with the current trading price. However, a recent note from Morgan Stanley named NU the firm's top Latin American finance pick, with a price target of $16 - almost double today's price.

Analysts See More Upside for StoneCo Stock

While Nu Holdings provides a banking platform, StoneCo offers a business-facing financial services platform. Valued at $3.3 billion by market cap, STNE stock is down almost 90% from all-time highs - but up about 13.4% on a YTD basis.

The stock represents 2.69% of Wood's Ark Fintech Innovation ETF (ARKF), and less than 0.1% of Buffett's portfolio - but Berkshire's 10 million-plus shares are equivalent to a 3.4% stake in STNE.

StoneCo has successfully built a robust network of service hubs to complement its point-of-sale (POS) offerings, providing the company with a wide competitive moat. For instance, its service hubs will spring into action in case StoneCo’s technology-powered services are not functioning properly. 

The stock was pummeled in 2022 due to a lending program that failed to take off, as well as the broader market sell-off. While StoneCo posted a hefty loss in 2021, it ended Q2 with a net income margin of almost 11%. The company is due to report quarterly earnings at the end of this week.

Looking ahead, analysts expect STNE to improve adjusted earnings from $0.35 per share in 2022 to $0.99 per share in 2024. This suggests STNE is priced at 11 times forward earnings, which is very cheap. 

Out of the 11 analysts tracking STNE, five recommend “strong buy,” and six recommend “hold.” The average price target for StoneCo is $15, indicating an upside potential of over 40% from current levels.

On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.