All eyes are on Warren Buffett. He can't help it. When the greatest living investor makes a move, everybody notices. He also updates investors regularly with the state of the dozens of investments making up the stock portfolio of his iconic holding company.
I am particularly intrigued by Nu Holdings (NYSE: NU) and Sirius XM (NASDAQ: SIRI), two of the current holdings of Buffett's Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) stock portfolio. Nu is an odd Latin American fintech play delivering stellar growth. Sirius XM is out of favor, but that didn't stop Berkshire Hathaway from adding to its position. Let's take a closer look.
Buffett has a long history of banking on financial services stocks, but Nu is different. It's a digital branchless bank. It's also based out of Brazil, where most of its customers are located. Berkshire Hathaway has been an investor in Nubank's parent company since 2021, just around the time that it went public at $9.
Berkshire Hathaway typically invests in companies with decades, if not centuries, of experience. Nubank didn't even launch until 10 years ago. It has more than made up for lost time. A whopping 56% of Brazil's adults now have a Nubank account. It has recently expanded into Mexico and Colombia, serving 104.5 million accounts by the end of June.
Nu will be on the move next week. It reports third-quarter results on Wednesday. It has routinely clocked in with "beat and raise" performances. Revenue soared 65% to $2.8 billion in its latest quarter, but analysts see the top-line jump decelerating to 39% in next week's update. It seems low. History suggests another beat is in order.
Momentum is on Nu's side. It got to 65% growth last time by padding a 25% year-over-year increase in subscribers with a 30% gain in average revenue per user. The user economics are solid. It costs just $7 on average to acquire a new Nubank account that it spends just $0.90 a month to serve. Average monthly revenue per user is up to $11.20 now, so a customer is profitable in the very first month.
Disappointed by stateside fintech stocks that can't deliver material bottom-line results? Nu saw its adjusted net income skyrocket 131% in its latest quarter. Net margin checked in at a record 20%. The stock may not seem cheap at nearly 50 times trailing earnings, but that multiple drops to 26 if we look out to next year. Nu's prospects can sour if the economy buckles in Brazil, but for now, it's one of the fastest-growing companies in Berkshire Hathaway's portfolio.
Shares of Nu have soared 83% this year. Sirius XM is another story. The satellite radio provider's stock has been cut roughly in half. In sharp contrast to the hearty growth of the Brazilian fintech star, Sirius XM is going the other way.
Revenue declined 4% in its latest quarter, Sirius XM's worst performance since its 1994 IPO. More subscribers are canceling than signing up, and that's scary to investors. The bearish thesis on Sirius XM is that satellite radio is transitory, and it will eventually be replaced by drivers streaming audio apps through the radios in their vehicles.
Buffett has been adding to his position. Berkshire Hathaway now owns nearly a third of the total shares outstanding after making another large purchase last month. Buffett seems to think that this out-of-favor stock is cheap, and he's probably right.
Sirius XM is now trading for just eight times next year's earnings. It's yielding 4.1% following a recent dividend hike. Its popularity may have peaked last year, but it's still serving 33.2 million total subscribers. Despite lowering its full-year guidance last week, Sirius XM is expecting to generate $1 billion in free cash flow on $8.675 billion in revenue.
Can a stock move higher as its audience shifts into reverse? Absolutely. This isn't half the business it was at the start of the year. The pessimism in the trading community is overdone. Sirius XM's proprietary content is still valuable, going by the platform's historically low churn rate. Attracting new users has been challenging, but it can find ways to grow its average revenue per user to offset sluggish subscription trends. Raising rates may be a hard sell at this point, but advertisers will likely continue to seek out Sirius XM to reach listeners who aren't easy to reach any other way.
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Rick Munarriz has positions in Nu Holdings and Sirius XM. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.