If you're looking for profitable stock ideas, look no further than Warren Buffett's portfolio. Buffett has proven to be one of the best investors in history, and stealing his ideas is a great way to position your own portfolio for success. Right now, his holding company, Berkshire Hathaway, is betting on two stocks that every investor should strongly consider. The long-term upside potential for both companies is truly impressive.
Want maximum growth? Buy this stock.
Few companies have grown as quickly in recent years as Nu Holdings(NYSE: NU). Sales growth rates have regularly surpassed 100% year over year, while earnings have just turned positive, and are on a strong upward trajectory. Shares trade at just 32 times forward earnings even though earnings growth next year is expected to be around 46%. What kind of business trades at this cheap of a valuation despite such strong fundamentals?
Part of Nu's problem is a lack of general market awareness given the company operates solely in Latin America. But there's also an issue of underestimating fintech businesses like this. Much of the market likely still considers Nu a bank stock, but it's really a fintech company, capable of growing far faster and generating higher profits than traditional banks. Last quarter, for example, Wells Fargo posts sales growth of around 1% with a return on equity just above 10%. Nu, meanwhile, grew revenue by 55% with returns on equity of 24%.
To be sure, Nu does have many fans already, including several notable investors likeWarren Buffett. The bank also already boasts a $60 billion market cap with more than 100 million customers. But roughly 100% of this customer base is in just three countries: Brazil, Mexico, and Colombia. In a nutshell, Nu is a fintech company focused on bringing low-cost financial services to a handful of countries that most American investors don't monitor. And yet Nu has taken these markets by storm. In 2013, for example, almost no one in Brazil was using Nu for their credit card, savings account, or insurance policy. Today, more than half of all Brazilian adults use Nu.
Clearly, Nu is a hit in its local markets, even if most investors abroad have yet to encounter the company or its stock. And shares do garner a premium versus most traditional bank stocks. But trading at just 32 times forward earnings despite earnings per share (EPS) tripling over the last 12 months is simply too attractive to ignore. Buffett hasn't sold any shares since the company's IPO in 2021, and it's not too late to join him in this little-known growth gem.
If you're worried about market volatility, few companies offer as much downside protection as Chubb(NYSE: CB). Late last year, Buffett and Berkshire began loading up on Chubb stock. But they didn't want the market to be aware of this buying activity. So they requested a disclosure exemption from the SEC, which they received. The exemption was reasonable, considering Berkshire is already a major player in the insurance industry. But few suspected Chubb as the company Berkshire was plowing billions into. Chubb is now Berkshire's ninth-largest position in its publicly traded portfolio -- a stake worth nearly $7 billion.
If markets turn sour, this is the type of stock that I'd want to own. That's true even as Chubb's stock price hits record highs. Analysts anticipate that property and casualty insurers, such as Chubb, will experience fantastic years in the future. Research from the Swiss Re Group, for instance, predicts P&C insurance pricing and profitability to strengthen due to weakening competition, higher interest rates, and easing inflation. "Property and casualty insurers are expected to improve profitability in 2024, with industrywide return on equity (ROE) across eight major markets at 10% so far this year, up from 6% in 2023," the firm predicts. "ROE of above 10% is forecast into 2025."
If current trends continue, Chubb is set for a record-breaking string of years from a financial perspective. And the company is uniquely positioned to weather any potential market downturns. That's because P&C insurance is generally a recession-resistant business, and Chubb has proven willing to snap up the competition when capital is scarce. Just take a look at the Great Recession. Throughout the 2008 crash, Chubb shares beat the S&P 500 even as the rest of the financial industry was collapsing. Chubb stock then went on to beat the S&P 500 over the following decade.
Chubb certainly doesn't have as much upside potential as Nu, but it's a fit for more portfolios looking to balance risk and reward.
Should you invest $1,000 in Nu Holdings right now?
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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
