Welcome back to the Wolf of Harcourt Street Newsletter.
Every month, I'll provide you with an update on my portfolio, including all of the transactions, the current allocation, and my buy list. In addition, I'll share a recap of the articles you may have missed from the previous month.
Transactions
At the start of the month, I sold my full position in Chevron (CVX) which was a 1.7% weight in my portfolio. Last month, I mentioned that I had been considering my exposure to commodities, particularly energy and utilities. After some careful consideration, I have concluded that commodities do not align with my overall investment strategy. In essence, commodity prices are volatile and are influenced by a variety of factors such as weather, global demand, and geopolitical events. There are so many factors outside of the control of management which makes it even more difficult to appraise the business. Essentially, the investment thesis for Chevron was a hedge against inflation and oil prices. While this thesis remains sound, the data shows that over the long-term, equities significantly outperform inflation. Over the past ten years, Chevron has significantly underperformed the S&P. If a stock cannot beat the market then what is its purpose?
I added to my position in NU Holdings (NU) with all of the proceeds from Chevron. At this time, NU traded for 24 times forward earnings. On 22 February, the company reported Q4 2023 earnings, and the following are my key highlights from the report:
NU’s customer base has consistently outpaced expectations, reaching almost 94 million customers at the end of Q4 2023, compared to 54 million two years ago. Management expects to cross 100 million customers in 2024.
Impressive customer net adds in Brazil, averaging 1.3 million customers per month, and accelerated growth in Mexico, reaching 5.2 million customers by the end of 2023, making the company the leader in the digital banking category in Mexico.
Over the past two years, the company has consistently accelerated revenues and improved profitability. FX-neutral revenues increased over threefold in two years, with an 82% annual compounded growth rate. In Q4 2023, revenues surged to $2.4 billion, a 57% YoY increase. Gross profit exceeded $1.1 billion, growing 87% YoY, and gross margin expanded to 47.5%. Net income reached $361 million, with adjusted net income at $396 million, reflecting a 229% YoY increase.
At the beginning of 2023, NU leadership communicated their Top Three Priorities for 2023, and here is how they performed:
Scaling Lending Business in Brazil: NU successfully doubled its origination of personal loans, reaching $2 billion in Q4 2023, with a market share increase from 12% to 22%. The company also introduced secured lending lines, with plans for further expansion in 2024.
Growing Share of Wallet in Upmarket Segment in Brazil: NU made progress in this long-term effort by achieving accelerated growth in market share of principality. It introduced tailored features and products across its platform, resulting in a 104% YoY growth in UV credit card purchase volume and the doubling of UV customers. NU also achieved the best industry Net Promoter Score (NPS) among high-income customers in Brazil.
Ramping up Local-Currency Deposits in Mexico and Colombia: NU successfully launched its deposit account solution in Mexico, experiencing a quadrupling of deposits to US$1 billion in just two months. The strategy was deemed successful despite being a significant investment, as it positioned Nubank for self-sufficiency in local-currency retail deposits. The company also obtained a financial license in Colombia, allowing it to launch its deposit franchise there.
Leadership also outlined the priorities for 2024, which include:
Scaling Mexico
Ramp-up Secured Lending in Brazil
Advance into Higher Income Segment in Brazil
Make the Money Platform Concept Tangible
What I really admire about NU is that they have clearly stated priorities and have also laid out a roadmap for how they will go about achieving these objectives.
Allocation
Portseido is the tool that I have been using to track my portfolio for a number of years. I really like the charts that it produces and how it tracks performance. They also added a feature to automatically track dividends too. To top it off, it is effortless to update for new transactions. The team have kindly given me an affiliate link so if you would like to sign up you can click here.
Broker
Trade Republic is the investment broker I use, with over 4 million users and €35 billion in assets across 17 European countries. The platform's combination of low fees (€1 per trade), accessibility, fractional share options, and regulatory backing makes it a reliable choice.
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Buy List
Stocks that are on my radar to add this month:
MercadoLibre (MELI) - MercadoLibre reported Q4 2023 earnings on 22 February, and the stock sold off by as much as 10% in reaction to the report. I shared a detailed earnings analysis (linked below for anyone who missed it), but in summary, I believe that the market reaction was unjustified. While I already have a very large MELI position, if the stock continues to trend downwards, I will look to increase this position further. It should be noted that the stock is back trading at the same levels as it was at the beginning of January, demonstrating how much the stock had run up over the past few months.
Airbnb (ABNB) - I have not added to my ABNB position in quite some time, but the company reported Q4 2023 earnings on 13 February, beating revenue and adjusted EPS consensus estimates by 3% and 12%, respectively. Nights and Experiences Booked is the KPI that I track for ABNB, and in Q4 2023, Nights and Experiences Booked of 98.9 million represented an increase of 12% YoY and a 30% increase compared to 2019 levels. Guest demand remains robust, as the exit from 2023 marked the highest quarterly growth rate of the year for first-time bookers.
On the conference call, CEO Brian Chesky revealed that the focus on perfecting the core service in 2023 involved launching over 430 new features and upgrades, leading to a 36% decrease in host cancellations in Q4 2023 compared to the same period a year ago. The reduction in host cancellations indicates increased reliability and satisfaction for both hosts and guests. It also implies that potential issues or pain points in the platform have been addressed, leading to a more stable and positive experience for users. This makes ABNB an even stickier service.
In Case You Missed It
Some of the articles you might have missed during the past month:
Final Words
The market has started 2024 very strongly, and while I monitor my portfolio performance on a quarterly basis, I couldn't help but notice that my portfolio was up by double digits with one month to go in Q1. This performance has meant that I have noticed fewer obvious opportunities in February. As a result, my only move was to allocate the proceeds from Chevron to NU. I didn’t add any new capital this month.
The overall market performance was largely driven by excellent earnings reports, with the Magnificent 7, in particular, driving the positive sentiment. The majority of my holdings have reported earnings for this season, but some notable holdings remain, including Sea Limited and Auto Partner. Subscribers can expect comprehensive earnings reviews for both in the coming weeks.
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Happy investing
Wolf of Harcourt Street
Contact me
Twitter: @wolfofharcourt
Email: wolfofharcourtstreet@gmail.com