Celebrated business magnate and Berkshire Hathaway (BRK.B) boss Warren Buffett has been a stock market ace for decades. The Oracle of Omaha is a staunch advocate of a value-based investing style, which involves buying stocks trading below intrinsic value with considerable defensive moats around their businesses.
Thanks to his outsized investing success, Buffett's methodology has attracted a legion of dedicated followers across the globe. Berkshire Hathaway's annual meeting is a major investing event, and quarterly filings that reveal Berkshire's latest buys and sells are dissected carefully in the financial media for clues about the investor's next big bet.
But with artificial intelligence (AI) driving so much of the stock market's gains in 2023, it's worth taking a look at Buffett's holdings right now to see which stocks are the leaders - and laggards - in the famously consumer-oriented portfolio.
Is tech giant Apple (AAPL) Berkshire's best performer as well as its largest holding? Or - with oil prices rocketing to new 2023 highs - maybe it's Buffett's current favorite energy play, Occidental Petroleum (OXY) that's leading the pack? And given widespread turmoil in the banking sector, did Bank of America (BAC) emerge as the worst performer?
As it turns out, none of the usual suspects mentioned above are the standouts in Buffett's portfolio right now. Instead, it's a Brazil-based banking stock that leads the pack, while a struggling streaming name is bringing up the rear. Here's a look at this year's best and worst-performing Buffett stocks so far.
Nu Holdings
The best-performing stock in Warren Buffett's portfolio this year, in terms of price action, has been the Brazil-focused digital bank Nu Holdings (NU).
Founded in 2013, shares of Nu have jumped a whopping 85% on a YTD basis, comfortably outpacing the S&P 500 Index's ($SPX) rise of 17% over the same period. The next best performer in the Buffett portfolio is Amazon (AMZN) - which NU has outpaced by 12 percentage points, on a YTD basis.
Nu is currently the largest digital bank in Latin America, with over 80 million customers in Brazil, Mexico and Colombia. The fintech company has a market cap of $35.45 billion and offers a variety of financial products and services, including checking and savings accounts, credit cards, loans, and investment products.
Notably, Nu is Buffett's largest holding outside the U.S., with 107.1 million shares in Berkshire's portfolio.
Nu's latest results for the second quarter were quite impressive, as the company reported a beat on both revenue and earnings. EPS for the quarter came in at $0.05, topped the consensus estimate of $0.04 and reversing a small loss in the year-ago period. Total revenues for the quarter stood at $1.87 billion, up 61.4% year-over-year.
Healthy growth in Nu's customer base (83.7 million in Q2 2023, up 28.2% YoY) and monthly average revenue per active customer ($9.3 in Q2 2023, up 19.2% YoY), along with prudent cost management measures, aided the top-line growth, as well as the bank's swing to profitability.
With consistent growth in critical banking metrics like net interest income ($1.05 billion in Q2 2023, up 134.8% YoY) and net interest margin (18.3% in Q2 2023 vs. 9.7% in Q2 2022), Nu has shown strength in core banking operations, too.
Looking ahead, analysts are forecasting stellar earnings growth for Nu in the near future. In the current quarter, analysts are expecting bottom-line growth of 400%, while for FY 2023, the consensus estimate is pegged at 325%.
Overall, analysts have given out a “Moderate Buy” rating on the stock, with a mean target price of $8.21. This indicates upside potential of about 8.5% from current levels. Out of 7 analysts covering the stock, 4 have a “Strong Buy” rating and 3 have a “Hold” rating.
Paramount Global
The worst-performing stock in Buffett's portfolio in 2023 has been Paramount Global (PARA), the media and entertainment conglomerate formed through the merger of Viacom and CBS in 2019.
Paramount Global stock has slipped 16.8% on a YTD basis - just a shade worse than Kraft Heinz (KHC), which is also weighing on the Berkshire portfolio with a 14.6% YTD slide.
Paramount currently commands a market cap of $8.7 billion, and offers a dividend yield of 5.76%. However, the company's long-term debt of $15.6 billion exceeds its total market cap, which is a cause of concern.
Buffett currently holds 93.7 million shares of Paramount Global's Class B shares.
With stubbornly high inflation levels continuing to hit the pockets of consumers, discretionary spending on entertainment has taken a hit. Moreover, its Paramount+ streaming platform is competing against established players such as Netflix (NFLX), Amazon's (AMZN) Prime Video, and Disney (DIS). Plus, the ongoing strikes in Hollywood have only complicated matters.
These operational challenges were reflected in the company's latest quarterly earnings, where Paramount reported a yearly decline in both revenue and earnings. Revenues for the second quarter stood at $7.62 billion, down 2% from the prior year on weakness in the TV Media and Filmed Entertainment segments. On the other hand, the Paramount+ streaming platform recorded growth in both revenue ($990 million, up 47.3% YoY) and subscribers (60.7 million, up 40.2% YoY), which offset the decline in legacy media revenues somewhat.
EPS, meanwhile, tumbled 84% from the prior year to $0.10. In fact, EPS at Paramount has dropped year-over-year in each of the past five quarters, and the company has beaten analysts' bottom-line expectations only once in this time frame.
That said, the company's content is finding some traction among key audiences. For instance, CBS claimed the #1 Spot in broadcast for the 15th straight season, and produced eight of the top 10 most watched series - including the top four. However, its major film releases in 2023 haven't fared as well, with Mission: Impossible - Dead Reckoning Part One requiring an insurance settlement to push it over the top towards profitability.
Taking all this into account, analysts have a soft earnings forecast for Paramount Global. For the current quarter, earnings are expected to drop by 74.4%.
Overall, analysts have handed out a “Hold” rating on the stock, with a mean target price of $19.12 - indicating upside potential of nearly 40% from current levels. Out of 21 analysts covering the stock, 4 have a “Strong Buy” rating, 2 have a “Moderate Buy” rating, 5 have a “Hold” rating and 10 have a “Strong Sell” rating.
Final Takeaway
While an under-the-radar Brazilian bank might not be the most obvious stock pick in the current climate, Nu certainly looks compelling at current levels. In light of its solid balance sheet, operational efficiencies, upbeat analyst estimates and optimistic growth forecasts, it's no surprise to find this name quietly leading the pack of Buffett stocks. Conversely, the mammoth debt levels and industry-specific troubles weighing on Paramount Global make this one streaming stock to avoid.
On the date of publication, Pathikrit Bose 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.
