Try Out a Warren Buffett-Backed Neo-Bank with Nu Holdings
Brazilian financial technology (fintech) company Nubank, which is owned by Nu Holdings (NYSE:NU), makes a promise to its customers: “Finally, you’re in control of your money.” It’s an intriguing concept, and the company is now publicly tradable as the NU stock initial public offering (IPO) took place late last year.
If you choose to own a stake in Nu Holdings, you’ll be in good company. That’s because Warren Buffett’s Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) investment fund reportedly took a $500 million position in Nu Holdings in 2021.
Unfortunately, NU stock has declined sharply since its public debut. Does this necessarily mean that there’s something wrong with the company, though?
Not necessarily. Buffett isn’t known for betting on bad businesses. Besides, macro-level factors could be to blame for the share-price dip, so there may be a prime buying opportunity here.
The Rise and Fall of NU Stock
After previously establishing a price range of $10 to $11 per share, Nu Holdings reduced the IPO range to $8 to $9 per share.
Was that a sign of lack of interest? We can only speculate, but in any event, NU stock commenced trading on the New York Stock Exchange on Dec. 9, 2021, at around $9.
The stock shot up right out of the gate, hitting $12.24 on Dec. 10. That turned out to the peak, however, and it was all downhill from there.
In hindsight, it’s reasonable to conclude that the IPO was poorly timed. Technology stocks and financial-sector stocks were hit hard in December 2021 and January 2022, and NU stock fits into both of those categories.
Therefore, it’s wise to adopt a watch-and-wait strategy if you believe that those stock-market sectors will continue to decline. Just as a rising tide lifts all boats, a falling tide can quickly sink all ships.
Checking in on Jan. 21, NU stock was trading at $7.54 and there was no sign of an imminent rebound. Does this mean that the shareholders should abandon ship, though?
A Very Strong Case
If you’re a true contrarian and value-focused investor like Buffett, then you might consider adding to your position in Nu Holdings instead of bailing.
Indeed, Buffett apparently isn’t the only financial expert with a belief in Nubank. S&P Global Ratings analyst Guilherme Machado, for example, sees Nubank as having “a very strong case based on its value.”
That value might come from Nubank’s opportunity for growth in its target region. Late last year, InvestorPlace contributor Samuel O’Brient disclosed a notable statistic:
“As of Sept. 30, the neobank reported an active user count that totaled 48 million. As the company operates primarily in Latin America, where many lean toward an unbanked lifestyle, that statistic is impressive.”
Herein lies Nubank’s value proposition, I believe. If Nubank can “bank the unbanked,” so to speak, then the company could create and establish loyalty with a whole new client base.
Plus, Nubank could serve as a one-stop-shop for these clients. After all, Nubank not only provides digital bank accounts and credit cards without charging fees, but also offers financial solutions such as loans, insurance products and investment services.
Time to Invest? Maybe
It’s difficult to draw a firm conclusion with Nu Holdings and Nubank now. If Wall Street dislikes technology and financial-sector stocks at the moment, then it might not be wise to buy NU stock.
On the other hand, if you really want to “be like Buffett,” then you have to be willing to swim in the opposite direction of the tide. That’s easier said than done, of course.
While some traders are selling NU stock, financial experts like Buffett and Machado apparently see a strong value proposition.
So, if you’re willing to give a downtrodden stock a chance, consider Nu Holdings and Nubank as serving the unbanked just might be the future of finance.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
