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Motley Fool Issues Rare “All In” Buy Alert
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Cathie Wood and Warren Buffett have extremely different approaches when it comes to investing. While Wood tends to invest in high-flying growth stocks, Buffett is usually seen as a value investor who also loves companies that return capital to shareholders. Wood is a big believer in crypto and Bitcoin (CRYPTO: BTC), projecting that the price of the world’s largest cryptocurrency will reach $1 million by 2030. Buffett has said in the past that he wouldn’t buy all of the Bitcoin in the world for $25.
Despite their differences, both Wood’s fund Ark Invest and Buffett’s company Berkshire Hathaway (BRK.A 0.23%) (BRK.B 0.21%) seem to agree on a few of the same stocks heading into next year, despite their recent struggles this year. Let’s find out a bit more about the two stocks these well-known investors both favor and where the stocks are headed in 2023.
Buffett and Wood and their investment vehicles are clearly interested in the developing financial services sector in Latin America, particularly Brazil, which is experiencing a time of rapid growth.
Wood’s Ark Innovation fintech exchange-traded fund (ETF) owned roughly 2.55 million shares of the payments company Stoneco (STNE 2.79%) valued at more than $26.5 million as of Nov. 25. Berkshire, at the end of the third quarter of this year, owned close to 10.7 million shares currently valued at more than $110 million, amounting to a roughly 3.4% stake in the company.
Stoneco has developed a range of payment solutions to help power e-commerce for businesses and merchants all over Latin America. In the third quarter, Stoneco reported about $390 million of revenue and earnings before taxes of close to $33 million. Small and medium-sized businesses using the platform surpassed 2.3 million, and total payment volume in the quarter also grew to close to $14 billion.
Stoneco stock is down close to 43% this year on news of rising interest rates, macroeconomic risks in Brazil, and some operational blunders. But you shouldn’t expect progress to be linear in an emerging market with a less-stable economy. Stoneco stock currently trades at roughly 1.6 times projected forward revenue and 37 times forward earnings, which seems reasonable for a disruptive, fast-growing company in a massive developing market.
Nu Holdings (NU 0.47%) is a digital banking disruptor in Brazil and has also started to grow quickly in Mexico and Colombia. The company offers low-fee credit cards and other traditional banking products through a sleek digital fintech offering, which enabled millions of Brazilians to access their first credit cards and bank accounts.
Through two of its ETFs, Ark owned roughly 4.58 million shares of Nu as of Nov. 25. Those shares are currently worth about $20.4 million. Berkshire, at the end of the third quarter, owned more than 107 million shares, which are currently worth close to $477 million, giving Berkshire a roughly 2.3% stake in the company.
Nu, which saw its stock tumble about 55% this year after going public at a huge valuation, also saw explosive growth, surpassing more than 70 million customers at the end of the third quarter and banking 39% of the Brazilian adult population. And it’s doing this with an industry-leading per-customer acquisition cost of just $6.
Furthermore, despite the growth, Nu’s management team does seem to have its eyes on profitability. In the third quarter, the company eked out a small $7.8 million profit while achieving record revenue of more than $1.3 billion.
The company also had an efficiency ratio in the third quarter, which is expenses expressed as a percentage of revenue (so lower is better) of roughly 55%, including stock-based compensation, a strong number. With Nu trading below a $21 billion market cap, investors can currently buy the stock at a cheaper valuation than Berkshire did.
Bram Berkowitz has positions in Bitcoin and Nu Holdings Ltd. The Motley Fool has positions in and recommends Berkshire Hathaway (B shares), Bitcoin, and Stoneco LTD. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.
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