I boosted my Nu stake by 26% today and started a brand new position in Mercado Libre. In an article a few weeks ago, I discussed exercising near-term patience with Nu (and Brazilian exposure) as macro headwinds in Brazil continued to strengthen. Budget drama was ramping and currency concern was building. Since that article, the stock has fallen by another 22% while the uncertainty unfolds. It now trades for 16× 2025 earnings, with 40% earnings compounding expected through 2027. While I think there is some risk to those estimates for 2025, that’s mainly due to currency weakness. This is an extremely prudent underwriter and proactively pulls back on risk whenever needed. It doesn’t try to beat quarterly estimates with aggressive originations… the goal is to build a 100-year company, and so balance sheet preservation is always top of mind. There’s no liquidity risk here. Zero. Nada. Today, the multiple leaves a large margin of safety and foreign exchange neutral (FXN) growth should remain stellar as it rapidly expands the product suite and user base.
Mercado Libre is being dragged down by the same macro headwinds as Nu. The multiple is near multi-year lows, while Meli continues to dominate the Latin American e-commerce landscape. It’s also successfully expanding into new adjacencies with ease… from banking, to entertainment, to insurance and beyond. Some margin pressure related to fulfillment expansion, rapid credit card growth and a one-off refund to fintech users (due to a policy change) should all be temporary. This company will likely continue to explosively compound top-line revenue while delivering leverage over the coming years. And now? It will do so from a compelling valuation starting point of a roughly 1X PEG.
I am leaving significantly more room to add to both of these names. Brazilian macro will likely get a bit worse before it gets better, and neither company is immune. This will absolutely impact financial results in the near term and we could easily see better prices to add. But? The strong will get stronger and I do not want to get into the habit of trying to perfectly time bottoms. Risk/reward looks very good to me, and both companies should be able to use this chaos to steal long-term market share from weaker competition. That will be the lasting impact, with temporary consumer spending weakness more fleeting.
The geographic dynamics also remain highly compelling. E-commerce and financial services access is much lower than the USA… economic growth ceilings are higher… population growth is faster… and these two companies have emerged as the two clear kings to take the lion’s share of this opportunity. These are two super-apps in the making poised to be the “winners who take most” across Latin America (and beyond). The Brazilian Real (R$) has weakened consistently and materially since these firms began existing. All of that drama has turned out to be short-term noise to take advantage of… and both of these companies have been fabulously successful through all of that noise.
If you’d like to learn more about Mercado Libre and see a lot more data to explain my bullishness:
If you’d like to learn more about Nu and see a lot more data to explain my bullishness:
Like I talked about yesterday, I am not ready to allocate the excess emergency savings to my brokerage yet. At the same time, I was ready to allocate the small piece of remaining cash I had already available in there. That’s what I did. To make room for MELI in the portfolio and to limit incremental financial services exposure, I sold another 8% of my Lemonade stake. That brings total sales in that position over the last 2 months from 33% to 41% of total shares. Unlike SoFi and some other high fliers, Lemonade’s price appreciation has been driven by multiple expansion, as estimates haven’t moved much recently. This has gone from a lot cheaper than markets on a price to gross profit basis, to a bit more expensive very rapidly. I do not plan on selling any more Lemonade shares at these levels, but plans could always change.
Here’s How the Portfolio & Returns Now Look:
