Warren Buffett is recognized as one of the world's most successful investors. His investment strategies focus on companies with strong fundamentals, competitive advantages, and shareholder-friendly management.
Buffett aims to buy stocks of undervalued companies with strong fundamentals. Two fintech companies that fit his investment philosophy are Visa (V), which holds a 0.6% weight in the equity portfolio of Warren Buffett's holding company, Berkshire Hathaway (BRK.B), while NU Holdings (NU) has a 0.3% weight.
Wall Street believes both stocks have more upside potential this year, with projected gains ranging from 22% to 36%. While the short-term upside is appealing, I believe these two stocks are also excellent buy-and-hold stocks for the long term.
Buffett Stock No. 1: Visa
Visa (V) operates one of the world's largest payment processing networks, which assists in transactions between consumers, merchants, financial institutions, and governments. This extensive global network has created a competitive moat, allowing the company to maintain its market position over the last few years. The stock has returned an astounding 410.6% over the last 10 years.
So far this year, Visa stock has gained 5.3%, compared to the S&P 500 Index’s ($SPX) gain of 11.2%.
Visa reported a strong second quarter, with total revenue increasing 10% to $8.8 billion, and adjusted earnings per share (EPS) rising 20% to $2.51. Both revenue and earnings surpassed the consensus estimates. Stable consumer spending and rising global travel demand increased payment volume by 8%, while cross-border volume increased by 16%.
Furthermore, Visa has a track record of returning capital to shareholders via dividends and share buybacks. This practice aligns with Warren Buffett's preference for companies that reward shareholders. It has a forward dividend yield of 0.75%, which is lower than the financial sector average of 3.1%. However, a payout ratio of 18.6% implies sustainable dividends with growth potential. Visa also repurchased 9.7 million shares during the second quarter.
Regardless of economic cycles, Visa's business model remains resilient. While consumer spending fluctuates, the overall trend toward digital payments is stable and growing. Going forward, the company's strategic artificial intelligence (AI) acquisitions, such as Expel, Prosa, and Pismo will further bolster its fundamentals.
Management expects low double-digit revenue growth and earnings growth in the low teens for fiscal 2024. Analysts covering Visa predict a bright future, with double-digit revenue and earnings growth over the next two years.
Notably, analysts expect revenue and earnings growth of 10% and 13.6%, respectively, in fiscal 2024. Furthermore, in fiscal 2025, revenue and earnings are expected to rise by 10.4% and 12.4%, respectively.
Turning to valuation, Visa is currently priced at 27 times forward 2024 earnings, compared to its five-year historical average of 34x.
Overall, Wall Street has given Visa stock a “strong buy” rating. Out of the 32 analysts covering the stock, 24 rate the stock a “strong buy,” four recommend a “moderate buy,” and four rate it a “hold.” The average target price for V stock is $307.96, which implies an upside potential of around 12.2% from current levels. The high price estimate of $335 suggests an upside potential of 22% over the next 12 months.
Buffett Stock No. 2: Nu Holdings
My second favorite Warren Buffett stock is fintech company NU Holdings (NU), whose revenue has grown drastically in the last couple of quarters. Thanks to rapid expansion and a growing consumer base, NU is now Latin America's fifth-largest financial institution.
Founded in 2013, NU Holdings is a new player in the fintech sector that continues to disrupt traditional banking services. Almost six months into 2024, this small digital bank stock has gained an impressive 40.8% YTD, outpacing the broader market.
Its flagship brand, Nubank, offers a variety of financial products such as credit cards, personal loans, and digital payment solutions. It has rapidly grown its customer base, adding 5.5 million in the first quarter of 2024. As of March 31, the company had a global customer base of 99.3 million.
NU's monthly average revenue per active customer rose 30% year-over-year, leading to a whopping 64% surge in total revenue to $2.7 billion. Its rapid geographic expansion resulted in a 142.7% increase in net profit to $442.7 million in the first quarter. Its gross margin has consistently hovered between 40% and 50% in the last few quarters, landing at 43% in Q1.
Analysts who track the stock believe the company has significant growth potential due to its innovative product offerings and strong customer base. Wall Street expects revenue and earnings to grow by 43.9% and 71.8%, respectively, in fiscal 2024. Furthermore, in fiscal 2025, revenue and earnings are expected to grow by 27.4% and 51.6%, respectively.
For this massive growth expected in the next two years, NU stock looks like a reasonable buy now, trading at 31 times forward 2024 earnings.
Overall, on Wall Street, NU Holdings stock is a “moderate buy.” Out of the 10 analysts covering NU, six rate the stock a “strong buy,” while four recommend a “hold.” NU has surpassed its average target price of $11.45, but the Street-high price target of $16 suggests an upside potential of 36.4% over the next 12 months.
The Key Takeaway
Visa and NU Holdings both offer a strong competitive position, consistent financial performance, global reach, and alignment with long-term secular growth trends - making them attractive stocks for investors who follow Warren Buffett's investment principles.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
