If you're an astute investor, then you've probably already got the foundational pillars of your portfolio in place. These are the solid, all-weather names that may not be producing massive gains, but nonetheless drive reliable forward progress.
Assuming that's the case, now's your chance to look beyond the tickers typically held by the masses and step into something a bit more adventurous. To this end, you might want to consider scooping up a stake in Nu Holdings(NYSE: NU) sooner rather than later.
What's Nu?
Never heard of it? Don't sweat it. Most U.S. investors likely haven't. That's because the online bank only does business in Latin America. It doesn't even offer its service in every Latin American country, in fact. As of now, it's only doing business in Brazil, Mexico, and Colombia, with no apparent plans to further penetrate this market -- at least, not yet.
Then again, it doesn't necessarily need to expand at this time, or even want to do so. Although it only launched in 2013, it now serves a whopping 110 million customers despite only offering online/mobile banking services in three countries.
Its current slate of offerings is also somewhat limited, consisting of the most basic of banking services like checking and savings accounts and card-based payments. Add-on services like investing and insurance aren't yet part of its lineup, while conventional lending is still only a small part of its business mix. Nu may be looking to build and then perfect a wider range of services before going to the trouble and expense of setting up shop where regulations may differ.
Even so, the young online-only bank is doing great where it is doing business. Research firm C-Innovation reports that Nu leads Brazil's digital banking business with a market share of 25%, for instance, while investment firm Sands Capital estimates that Nu is now among Brazil's top-five credit card issuers. It's doing well in Colombia and Mexico, too, after entering the latter's banking market just a little over a year ago.
There are four very specific reasons, however, you might want to add this growth stock to your portfolio the next chance you get to do so.
1. It's doing business where this market's growth is strongest
Online banking isn't exactly a new idea. U.S. users have enjoyed this option since the internet become commonplace in the late 1990s. The rise of smartphones and mobile broadband shortly thereafter accelerated digital banking's growth. Latin America's telecom infrastructure didn't develop in step with North America's, however. Indeed, in many ways it's roughly 20 years behind its northern counterpart.
It's now catching up though, and how! Market research outfit GSMA Intelligence says that as of 2023 only 65% of the continent's residents were regular users of mobile internet service, en route to a still modest prediction of 72% by 2030. And expect more penetration growth beyond that level. For perspective, Pew Research says 91% of adults living in the U.S. own a mobile broadband-capable smartphone.
As was the case within the United States, look for interest in online banking to grow in tandem with the region's growing access to the worldwide web.
2. The company's proven it can achieve market-leading growth
The rising tide of internet access is, of course, an opportunity for all banks to win new customers. But Nu Holdings is clearly winning more than its fair share of this growth. Its total deposits reached $28.3 billion during the third quarter of last year, up 60% year over year to drive net income up 83% to $553 million. In both cases, this growth extends long-lived trends that are expected to persist for at least a few more years.
Veteran investors likely know that while Warren Buffett is a big fan of the United States' unique economic strength, he's not a big fan of technology stocks, suggesting their businesses are just too difficult to understand. Well, Nu tiptoes in the latter category, and is certainly anything but the former.
Nevertheless, Buffett's Berkshire Hathaway holds a billion-dollar stake in the Latin American digital bank. What gives? OK, it may not be Buffett himself making the call. The Oracle of Omaha is increasingly turning over stock-picking duties to his lieutenants.
Still, his protégés are embracing Buffett's stock-picking mindset, recognizing that each of Berkshire's holdings is a part of a much bigger portfolio of publicly traded as well as privately held companies. If anyone at Berkshire likes Nu well enough to bother committing any amount of the conglomerate's precious cash to it, that in and of itself speaks volumes.
4. Nu stock is currently trading at a discount
Last but not least, buy Nu Holdings stock like there's no tomorrow simply because it's undervalued. Shares soared in 2023 and 2024, when many investors first began stumbling across this hidden gem following the end of the COVID-19 pandemic.
As is so often the case though, the rally went too far, too fast. The 35% pullback from this past November's peak is a correction of that overly aggressive buying, and further fueled by economic volatility in and around Brazil.
Except, the pullback was similarly overzealous, dragging Nu shares much lower than they arguably need to be. Newcomers will likely be stepping in at a temporary low, in front of a recovery effort. The analyst community seems to think this is the case anyway. Its consensus price target stands at $14.87, which is more than 40% above Nu stock's present price. Half this crowd also currently considers Nu stock a buy at this time.
Just keep it in perspective
This isn't a first-and-only kind of stock for anyone's portfolio. It's the kind of ticker you pick up when you already have a strong, foundational base of investments in place and can weather the realization of the above-average risk Nu brings to the table. If you're ready for that risk though, the potential near-term and long-term upside is worth it.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
