Since Warren Buffett became CEO of Berkshire Hathaway in 1965, the company has delivered stellar returns for investors of nearly 20% compounded annually. For this reason, many investors like to look to Berkshire Hathaway and its investment portfolio for ideas.
Over the past year, Buffett has been a net seller of stocks. This includes several bank stocks Berkshire has held for a while. One is Bank of America (NYSE: BAC), which has been a part of Berkshire's portfolio since 2011. Another is Nu Holdings (NYSE: NU), the upstart fintech company bringing banking to Latin America.
Despite Berkshire's selling, these are still solid stocks to own. Here's which one is a better buy today.
Image source: The Motley Fool.
Bank of America's balance sheet has faced scrutiny
Since the second quarter, Warren Buffett and his team at Berkshire Hathaway have reduced their stake in Bank of America from around 1 billion to 680 million shares, or about a 34% reduction. Despite what has felt like relentless selling, Bank of America remains the third-largest stock in Berkshire's portfolio, with a value of $31 billion as of this writing.
The past several years have created a tricky operating environment for major banks. In 2022, the Federal Reserve began aggressively raising interest rates to contain inflationary pressures, which resulted in mixed results for Bank of America.
On one hand, the bank's net interest income rose from $43 billion to $57 billion over two years ending in 2023. On the other hand, the bank's loan portfolio, which contained lower-yielding investments, saw a dramatic increase in unrealized losses, which ballooned from $14 billion to $112 billion.
These unrealized losses have been a concern among investors. However, Bank of America has a robust deposit base spread across clients, geographies, and industries, which should prevent it from facing a run on the bank, as a few regional banks faced in spring 2023.
One positive for Bank of America is that these lower-yielding securities are running off its portfolio, freeing up capital for the bank to invest at higher interest rates. This, along with the expectation of fewer interest rate cuts from the Federal Reserve, has the bank projecting a record net interest income for 2025.
Nu Holdings is a fast-growing fintech that dominates Brazilian banking
With its digital bank business model, Nu Holdings has exploded in growth across Brazil. Today, its customer base stands at 101.8 million, or 58% of Brazil's adult population. Nu has opened up the banking system for millions across Brazil, and the company hopes to do the same in Colombia and Mexico.
One concern among investors is that the fintech's growth may be slowing. For example, credit card receivables stood at $14.6 billion at the end of last year, a modest increase from the previous year. Slower growth here could signal a shift in consumer trends or that Nu has reached saturation in Brazil, and its rapid growth phase is behind it.
In the past year, Berkshire Hathaway has slashed its position in Nu by 62% and now holds 40 million shares in the fintech.
The company is addressing this and expanding new verticals to drive future growth. In recent years, it's launched several services, including NuPay, Nu Travel, and NuMarketplace. Recently, it introduced NuCel, a mobile phone service, to diversify beyond financial services and decrease its reliance on credit to drive growth.
The fintech is growing well and has posted eight consecutive profitable quarters amid its rapid growth. Last year, the company grew its revenue by 58% to $11.5 billion. Meanwhile, its positive earnings trend continued as net income topped nearly $2 billion, up 28% from one year ago. The company continues to grow well in Mexico, with customer count up 91% year over year, and it also boasts over 1 million customers on its Marketplace platform.
Better buy: Bank of America or Nu Holdings?
If you are looking for a more stable investment, you may be drawn to Bank of America. You won't get incredibly high returns, but you will own one of the largest banks with a stable asset base and that can grow in today's interest rate environment. It's also significantly cheaper than Nu, at 1.7 times tangible book value and 14 times earnings.
If you're seeking growth and willing to take on more risk, Nu Holdings is a better buy. It's seen impressive growth across Brazil, and Mexico and Colombia are next in its sights. If its growth rate slows down or economic conditions in the region impact its business, the stock could be vulnerable to a larger decline, especially because it trades around 9.4 times tangible book value and 37 times earnings. That said, I like Nu's longer-term growth potential and think it can continue to deliver for investors.
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Bank of America is an advertising partner of Motley Fool Money. Courtney Carlsen has positions in Nu Holdings. The Motley Fool has positions in and recommends Bank of America and Berkshire Hathaway. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
