Warren Buffett remains one of the best investors of all time. If you want to buy profitable stocks, pay attention to the portfolio moves at Buffett’s holding company, Berkshire Hathaway.
What is Berkshire Hathaway buying right now? Two recent stock purchases should get you excited.
Follow Buffett into an industry he knows best
Most investors know the basics of how Berkshire Hathaway operates. At its core is a suite of insurance companies, many of which have been wholly owned for decades. These insurance companies generate regular investable cash known as “float.” Buffett and his team, therefore, have a steady supply of capital to put to work, unconstrained by market volatility.
When markets crash, many of these insurance companies generate the same level of investable cash as they did during bull runs — a major advantage versus other investors, who are typically cash poor during market downturns.
Suffice it to say, Buffett knows a thing or two about insurance. That’s what makes his recent purchase of property and casualty insurer Chubb (CB) so notable. Berkshire already has billions of dollars staked on the insurance market, and wholly owns several major insurers itself.
Yet last quarter, it disclosed a new Chubb stake of 26 million shares worth around $6.7 billion. That’s around 6% of Chubb’s entire market cap. Notably, Berkshire had been buying the stock for several quarters, but received a special regulatory exemption to keep its stake hidden until earlier this year.
This isn’t a fast-moving growth stock. Over the last five- and 10-year periods, Chubb shares have actually underperformed both Berkshire Hathaway and the S&P 500. Plus, it’s posted lower book value growth in recent years, yet trades at a premium to Berkshire Hathaway on a price-to-book basis.
So why exactly is Buffett buying Chubb stock? It may simply be a bet on improving dynamics for the insurance industry. Swiss Re Group believes the next year or two should generate solid returns for insurers, backed by slowing inflation, higher volumes, and better pricing. The firm believes returns on equity for the industry could reach 10% this year, up from 6% in 2023. For 2025, returns on equity are expected to improve even further.
Chubb looks like a reasonable place for Buffett to park some of Berkshire’s growing cash hoard. But what if you want a stock with even more growth potential?
This stock is a growth superstar
Want rapid growth? Take a look at Nu Holdings (NU), a fintech stock shaking up the Latin American banking industry.
Nu isn’t exactly a new Buffett stock. Berkshire Hathaway has held shares since 2021 — the year of Nu’s IPO. Yet for a company that often holds investments for several decades, this is still a relatively new position. And despite wild gyrations in Nu’s stock price, Buffett has refused to sell a single share. It’s not hard to see why.
When it comes to massive growth, few stocks can match both the history and potential of Nu. When it first launched in Brazil roughly a decade ago, it had essentially zero customers. Today it has more than 100 million, including customers in new markets like Mexico and Colombia. The company is still adding 3 million to 6 million new customers every 90 days, with revenues growing by an astounding 75% annually.
What made this massive growth possible? Unlike many of its Latin American competitors, it implemented a digital-first strategy. This gave many new smartphone users instant access to low-cost banking services. More growth should be on the way, too, since the Latin American region as a whole contains more than 650 million people and many of them remain underbanked.
Nu stock isn’t cheap at 13.5 times sales. But that pricey multiple should look like a steal a few years down the road. Analysts expect revenue to grow by 49% next year, and that’s with the company’s valuation at $64 billion. If you want to follow Buffett into a rapid growth stock, few provide as much upside potential as this.
— Ryan Vanzo
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Source: The Motley Fool