Politics and policy can influence markets, but markets can also overreact. That brings me to Nu Holdings Ltd. (NU), writes Carl Delfeld, editor of Cabot Explorer.
Recently, 80-year-old Luiz Inácio Lula da Silva’s – better known as “Lula” – unexpectedly beat Flávio Bolsonaro for a fourth term as the president of Brazil. Brazil’s stock market reacted poorly to the news because investors were expecting a pro-business Bolsonaro regime. But my view is that Lula is a known quantity. And although Brazil has its financial and political challenges, its economy and market have done reasonably well under his leadership.
Nu Holdings Ltd. (NU)
As for NU, over the past 12 years it has grown from a small start-up into a major player in Latin American finance with digital financial platforms in Brazil, Mexico, and Colombia. Nu is opening a platform in America as well, and it just launched an international bank servicing 35 countries.
Nu has been posting some impressive and consistent numbers. In the last four quarters, revenue growth has increased 39%, 45%, 56%, and 39%, sequentially. Gross margins of around 40% have led to quarterly net income growth of 39%, 50%, 41%, and 49%.
Nu is also adding millions of new customers each quarter, bringing in four million during the second quarter. The company’s growing earnings and deposit base provide a foundation for continued expansion, although managing credit remains important as its loan portfolio grows.
Recommended Action: Buy NU.
