We recently compiled a list of the 12 Best Up and Coming Stocks To Buy According to Hedge Funds and in this article, we discuss why hedge funds have sizable positions in Nu Holdings Ltd. (NYSE:NU).
Despite the concerns surrounding the market over the last few years, the broader market has performed exceptionally well as the S&P 500 reached new record highs crossing 5,300 points by mid-May. While the broader market has been surrounded by bearish sentiment since 2022 and even after its tremendous performance in 2023, many analysts have retracted their statements and are now expecting a positive future. For the year-end 2024, UBS and BMO expect the index to reach 5,600, Wells Fargo predicts that it will close out the year at 5,535 and even one of the most bearish analysts, Morgan Stanley’s Mike Wilson, raised the target to 5,400 from the prior 4,500.
Interest Rate Predictions
Interest rate hikes and cuts have been a major part of discussion in the markets for the last couple of years. In 2023, many analysts predicted up to six cuts in 2024 but the predictions faded over time with hotter-than-expected inflation data. At the Federal Reserve’s May 1 meeting, Chairman Jerome Powell showed hesitation in providing a specific time for any decision on rate cuts and said that the Fed needs more data before taking any step. However, the chairman did hint that the chances of hikes are highly unlikely. Some experts also believe that there may not be a rate cut this year as discussed in our previous article about best soaps and cleaning materials stocks.
According to CME’s FedWatch tool, 98.9% of the market is expecting interest rates to remain the same at the Fed’s June meeting while 1.1% believe that the Fed may raise the rates by 25 basis points (bps). Morgan Stanley predicts rate cuts to start in September at 25 basis points as they expect that inflation will begin to decline which could give the Fed enough confidence to start cutting rates. The FedWatch tool reveals that in September, 51.6% of the market isn’t expecting any rate cuts, 42.8% expects a 25 bps reduction, 5% expect rates to be cut by 50 bps and 0.6% believe that the rates will be 25 bps higher than the current levels of 5.25% to 5.5%.
Market Upside Potential Amidst Tightening Policies
Recently, we have seen another pullback in the market as the broader market has contracted by 1.5% between May 27 to 30. However, some experts still expect an upside and believe that the market is in healthy condition.
On May 29, former chief investment strategist for The Leuthold Group and Wells Capital Management, Jim Paulsen told CNBC that he is optimistic about the economy and highlighted its resilience despite previous recession predictions and challenges like inverted yield curves. He noted the strength of corporate balance sheets, overall economic health, liquidity, and positive recent earnings reports. He also acknowledged that tightening policies such as higher yields, a stronger dollar, a lower fiscal deficit to GDP ratio, modest monetary growth, and balance sheet contraction will eventually slow the economy and reduce inflation. Paulsen predicts that inflation will fall below 3%, creating favorable conditions for the market and suggesting potential for further upside. Moreover, Paulsen noted that the inflation has indeed come down if we compare it to 2022’s 9% and added that he does not think that the Fed target of 2% inflation is needed for “things to be good.”
Hedge Funds are Bullish on This Up and Coming Digital Banking Stock
Our Methodology
For this article, we used the Yahoo Finance stock screener to identify over 400 stocks that have experienced revenue growth of at least 40% year-over-year and a market cap of above $300 million. We then narrowed down our list to 12 stocks that have seen growth in hedge fund sentiment between the fourth quarter of 2023 and the first quarter of 2024, have positive analyst sentiment, and have consistent revenue growth. We listed the best up and coming stocks in ascending order of their hedge fund sentiment.
The hedge fund data was taken from Insider Monkey’s database of 919 elite hedge funds as of the first quarter of 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple, our research has shown that we can outperform the market by imitating the top stock picks of best hedge funds. Our quarterly newsletter’s strategy picks 14 small and large-caps every quarter and it has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Hedge Funds are Bullish on This Up and Coming Digital Banking Stock
Nu Holdings Ltd. (NYSE:NU)
Year-over-Year Revenue Growth in FQ3 2023: 61.5%
Year-over-Year Revenue Growth in FQ4 2023: 57%
Year-over-Year Revenue Growth in FQ1 2024: 66.7%
Number of Hedge Fund Holders: 63
Nu Holdings Ltd. (NYSE:NU) offers a digital banking platform, spending solutions, mobile payment solutions, and more. On May 15, Susquehanna raised the price target on Nu Holdings Ltd. (NYSE:NU) to $14 from $12 and kept a positive rating.
Nu Holdings Ltd. (NYSE:NU) is one of the best up and coming stocks to buy as it has demonstrated robust customer acquisition and retention capabilities across its key markets, especially in Brazil and Mexico. As of Q1 of 2024, the company reported a total customer base of 99.3 million, marking a 26% year-over-year increase. This growth accentuates Nu’s position as a leading digital banking platform in Latin America, with impressive figures in Mexico, where the customer base reached 6.6 million, growing by 106% year-over-year. Moreover, Nu Holdings Ltd. (NYSE:NU) has achieved significant financial milestones. In Q1 2024, the company reported revenues of $2.7 billion, up 66.7% year-over-year. This growth was supported by increased customer engagement as it achieved a 30% year-over-year growth in average revenue per active customer, which reached $11.4. The company maintains a highly efficient operating model with a low cost-to-serve per active customer standing at $0.90. Nu Holdings Ltd. (NYSE:NU) also plans to increase its product offerings and market penetration. Its strategy includes increasing its product offerings such as secure lending initiatives in Brazil and leveraging advanced technologies like real-time payments and AI. These initiatives aim to refine customer experience and capture additional market share in the competitive fintech landscape.
In the first quarter, 63 hedge funds racked up shares of Nu Holdings Ltd. (NYSE:NU) with stakes amounting to $5.56 billion. This is compared to 54 with positions worth $4.54 billion in Q3 of 2023. As of March 31, Warren Buffett’s Berkshire Hathaway is the most significant shareholder of the company and has a position worth $1.278 billion.
Baron FinTech Fund stated the following regarding Nu Holdings Ltd. (NYSE:NU) in its first quarter 2024 investor letter:
“Nu Holdings Ltd. (NYSE:NU) is a digital bank with operations in Brazil, Mexico, and Colombia. Shares appreciated during the quarter after the company reported strong balance sheet growth and improving margins. New product launches and expansion in newer countries are yielding favorable results. Nu also benefited from inclusion in the MSCI Brazil Index, which prompted buying from passively managed funds. We continue to own the stock because Nu is disrupting the financial services industry in Latin America with its digital distribution and intense focus on user experience. The company has grown to serve over 90 million customers in less than 10 years, largely through word-of-mouth referrals. We believe the company’s superior product offering will drive continued share gains in large and growing markets. “
Nu Holdings Ltd. (NYSE:NU) takes the third spot on our list of best up-and-coming stocks to buy. To find other up-and-coming stocks that hedge funds and analysts like, check out our free report on the 12 Best Up and Coming Stocks To Buy According to Hedge Funds.
Our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure. None. This article is originally published on Insider Monkey.
