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Warren Buffett made some big moves last year. The portfolio of his holding company, Berkshire Hathaway, saw some massive shifts in position sizes, including some huge selling of its biggest position. Moving into the new year, two Berkshire positions in particular look compelling right now.
This fintech stock is too cheap to pass up
Fintech stocks are growth machines, at least in theory. A company that offers financial services directly through a smartphone can, theoretically, scale much faster and more economically than a competitor relying on physical branches.
The issue, however, is that asset-light businesses are often easy to start up. We've seen that in the U.S., where fintech businesses abound. Watch television or listen to the radio, and seemingly within minutes, you'll hear multiple ads for digital banks vying for your patronage. So while the category in general is growing and can be quite profitable, rampant competition has suppressed growth rates for individual companies and stymied their ability to scale profitability.
The exception to the rule has been Nu Holdings (NYSE: NU). While Berkshire Hathaway did trim its position last year, it still retains a $1.2 billion position in what I believe to be the best fintech stock on the market today.
Nu's secret isn't necessarily in its business model, but in its geographies of focus. The company is focused on just three markets: Mexico, Brazil, and Colombia. In the long term, it intends on expanding into much of Latin America, targeting the region's 650 million residents. The financial services industry of these markets varies greatly from more mature markets like the U.S. In less than 10 years, for instance, Nu has been able to go from nearly zero customers to commanding a 56% market share among Brazilian adults. Imagine more than half of Americans using a single bank. That's how much market power Nu commands.
Compared to a U.S. competitor like SoFi Technologies, Nu has been able to maintain higher growth rates with superior profitability. Its growth journey has slowed due to market penetration, but shares now trade at just 33 times trailing earnings and 20 times forward earnings. That's a steal for a business expected to grow revenue by double digits for many years to come.
Bet alongside Buffett on this rebound stock
Warren Buffett cut his teeth as a value investor. Over the years, he has strayed further into other categories like growth investing. But when it comes to Berkshire's $2.4 billion stake in Sirius XM Holdings (NASDAQ: SIRI), this looks like a pure value play.