🤩 PERFECT STOCK? Cathie Wood & Warren Buffett BOTH Hold This Stock!

00:00
what if i told you there was a stock
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held by both kathy wood and warren
00:03
buffett what if i told you this stock is
00:05
also 60 off its one year high what if i
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added that i think the stock just
00:10
bounced off its bottom and might make a
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strong reversal leading up to its
00:13
earnings call in a few weeks see here's
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the thing the idea behind this channel
00:18
is simple connect the dots between
00:19
arching best market research stock picks
00:22
and daily trading data to highlight the
00:24
best investment opportunities among
00:26
advanced technology companies that are
00:28
transforming our daily lives these are
00:30
big ideas about tomorrow that we can
00:32
invest in today and the companies with
00:34
these big ideas tend to be smaller
00:37
scrappier and much more volatile than
00:39
today's tech giants like apple and
00:41
amazon and that makes sense because
00:43
kathy wood is trying to invest in
00:44
tomorrow's apple and tomorrow's amazon
00:47
while investors like warren buffett are
00:49
trying to buy today's already profitable
00:52
market leaders at great valuations
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that's why i was so surprised to find
00:56
out that both cathy wood and warren
00:58
buffett are invested in the same stock
01:00
well that company is called stoneco or
01:03
stone and its ticker symbol is stne
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warren buffett's brookshire hathaway
01:08
purchased about 14 million shares of
01:10
stone back when it ipo'd in october of
01:13
2018. that amounted to about 8 percent
01:15
of the company and berkshire still has
01:17
over 10 million of those shares today or
01:20
about 6 percent of the company we can
01:22
also find over 1.7 million shares of
01:24
stone in arc f arc invests fintech
01:27
innovation fund even after it roughly
01:29
5xed in 2020 before crashing by over 60
01:33
from its highs in february looking
01:35
through arc f's holdings is actually how
01:36
i came across this stock in the first
01:38
place so in this episode i'd like to
01:41
share what i've learned about stone and
01:43
why these two legendary investors might
01:45
both be holding it full disclosure i
01:47
just opened a position in stone myself
01:50
in my 100 000 portfolio based on this
01:53
research since your time is valuable
01:55
i'll talk more about how you can follow
01:57
along with that portfolio project and
01:59
get access to my real-time trade alerts
02:01
at the end of the episode for now let's
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dive right into the company
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stone is a one-stop shop that provides
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small and medium-sized businesses in
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brazil the fintech solutions they need
02:12
to move away from cash and join the
02:13
digital economy the thing i want to
02:15
point out about brazil is that a lower
02:17
percentage of people have internet there
02:19
than in the u.s canada and western
02:22
europe meaning stone's base level market
02:24
is still growing year over year as more
02:26
and more people gain access to the
02:28
internet only about three in four people
02:30
in brazil have access to the internet
02:32
today i think this is a big reason that
02:34
over two-thirds of the country still
02:36
prefers to pay for things in person and
02:38
in cash and e-commerce accounts for less
02:41
than five percent of total spending in
02:43
brazil talk about a huge runway for
02:45
growth this is also why several of
02:47
stone's solutions focus on digitizing
02:50
every part of the business not just
02:52
optimizing it first stone has a point of
02:54
sale solution for accepting credit cards
02:57
digital wallets and qr codes kind of
02:59
like square's payment terminal in
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addition they help businesses complete
03:03
fully online transactions without any
03:05
physical devices by generating payment
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links that can be sent to customers for
03:09
quick and easy sales so if somebody
03:11
wants a product that they saw on
03:13
instagram or facebook or whatsapp stone
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can generate a link for them to pay
03:17
directly for the item without needing to
03:19
go through a website at all that means
03:22
that stone can support micro merchants
03:24
and very small vendors without actual
03:26
store fronts or websites which greatly
03:28
expands their total addressable market
03:31
so between their physical point of sale
03:32
terminal and their digital payment and
03:35
invoicing solutions stone can help any
03:37
type or size business accept payments in
03:39
every channel they're already operating
03:41
in that kind of scalability is important
03:44
to long-term growth but accepting
03:46
payments is just the first piece of the
03:48
puzzle another important thing to
03:50
realize about brazil specifically and
03:52
emerging markets in general is that
03:54
their banking systems can be fragmented
03:56
and hard to navigate so a lot of fintech
03:58
companies are setting up end-to-end
04:01
financial ecosystems for their customers
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and stone is no exception they offer a
04:05
business credit card that's funded by
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the sales from that store which already
04:09
goes a long way to helping store owners
04:11
move to the digital economy they also
04:13
allow people to use the money from their
04:15
store to pay bills and top up their
04:17
accounts with services that they use
04:19
like apps games and transport think
04:22
about being able to top up your own uber
04:24
account balance or apple wallet straight
04:26
from the app that you use to manage your
04:28
business it seems like a little thing
04:30
but those convenient features are
04:32
exactly the kinds of things that keep
04:34
people on stone's platform and speaking
04:36
of the platform stone's platform offers
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business intelligence and ecommerce
04:40
analytics solutions so that business
04:42
owners can start understanding their
04:43
online data quickly and make
04:45
improvements to every part of their
04:47
sales funnel stone also has a lot of
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other financial services that can really
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help small businesses grow they offer
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business loans with flexible payment
04:55
models and cash advances based on
04:57
projected cash flows that's huge because
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small business owners that are still
05:01
trying to find their footing might need
05:03
that extra cash up front to fill a few
05:05
extra orders sooner and that could be
05:07
the difference between success and
05:08
failure early on
05:10
i think about this sort of like square
05:12
capital which is square's lending and
05:14
financial arm they also help small
05:16
businesses offer loyalty programs and
05:18
incentives to their customers which
05:20
encourages repeat shopping and builds
05:22
that brand loyalty which is another
05:24
thing that helps small businesses build
05:26
that momentum that they need to stay
05:27
successful over time stone even offers
05:30
health insurance and life insurance
05:32
which are normally things that i
05:33
wouldn't attribute to a fintech company
05:35
but it makes sense in this case because
05:37
they're trying to be that end-to-end
05:38
business ecosystem and ensuring your
05:41
assets and employees is part of running
05:43
a business i say this in every fintech
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episode i make but i'll say it again
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here there will never be a
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one-size-fits-all global fintech
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solution because every country has
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different regulations and
05:54
infrastructures and cultures surrounding
05:57
money and commerce so one strong
05:59
differentiator of stone for me is that
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their entire business model is adapted
06:03
to the brazilian economy which means
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they're constantly rolling out products
06:07
and services that their core market will
06:09
actually adopt that's also why they have
06:12
stone hubs which are physical buildings
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that include staff for sales logistics
06:16
and operations support they're kind of
06:18
like a best buy geek squad but for
06:20
merchants on the stone platform pretty
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cool right
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in 2017 stone became the first non-bank
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entity to obtain authorization from the
06:29
central bank of brazil to operate as a
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merchant acquirer payments institution a
06:35
merchant acquirer is a financial
06:36
institution that maintains a merchant's
06:39
account enabling them to accept credit
06:41
cards and settles credit transactions on
06:44
their behalf i think this is what warren
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buffett and berkshire hathaway really
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saw in stone and why they invested so
06:50
much money in it in 2018 for the next
06:53
three years through 2020 stone was the
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largest independent merchant acquirer in
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brazil during the first wave of the
06:59
pandemic when people started to handle
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more transactions digitally instead of
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with cash 51
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of all of brazil's e-commerce volume
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went through stone's platform in late
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2020 stone paid about 1.3 billion
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dollars to acquire a company called lynx
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which is a leading software company that
07:17
developed software solutions for
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merchants of all sizes if you've been
07:21
watching this channel for a while you'll
07:23
know my thoughts on these types of
07:24
business combinations think teledoc's
07:26
merger with lavongo palantirs
07:28
investments into over a dozen specs
07:30
skills acquisition of archi and all the
07:33
other acquisitions i focus on when i
07:34
talk about earnings on this channel if
07:37
you're newer to the channel the nutshell
07:38
is that the market unfairly punishes
07:41
mergers and acquisitions because they
07:42
show up on earnings reports as huge
07:44
upfront costs that then pay off over
07:47
long stretches of time that means that
07:49
wall street analysts who only care about
07:51
quarter over quarter numbers see this as
07:53
poor performance while long-term
07:55
investors see the value added much
07:57
further into the future the big synergy
07:59
here is that lynx has been targeting
08:01
medium and large sized businesses while
08:03
stone has been focusing on smaller
08:05
businesses links will help stone serve
08:07
more businesses in more verticals as
08:09
well as more tightly integrate their
08:10
software and payment services and
08:12
provide better coverage of the different
08:14
commerce channels that these merchants
08:16
already sell through they also have a
08:18
lot of synergies because lynx is focused
08:20
more on the software for workflow
08:22
automation resource planning and
08:24
business management while stone is
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focused more on credit financing and
08:28
banking solutions stone also made a
08:30
strategic investment in a company called
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banco inter which is a 100 digital bank
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in brazil that offers a complete suite
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of financial products and services to
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individuals banco inter has a
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marketplace called intershop an
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investing service called inter invest
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and an insurance service called inter
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seguros stone acquired up to five
08:50
percent of banco inter and as a result
08:53
gets to put a member on their 9-person
08:55
board as a result of that stone's
08:57
merchants can list their products on the
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inter-shop marketplace and inter's
09:01
customers will get access to a seamless
09:03
payment experience for those merchants
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so this is another big upfront cost that
09:07
should provide a lot of returns in the
09:09
long run that leads me to stone's vision
09:11
of the future which is to take all of
09:13
these separate solutions and create a
09:15
single financial operating system for
09:17
these businesses including online
09:19
payments and sales payroll banking and
09:21
taxes business credit and loans and
09:24
other value-added services like
09:26
insurance and loyalty programs if that's
09:28
starting to sound very familiar to you
09:30
it could be because square also offers
09:32
many of these same services squares
09:34
currently arc invest's sixth biggest
09:36
position overall and the number one
09:38
holding in arc f which is the only arc
09:41
invest fund that holds stone stock
09:43
inside it that's how all these pieces
09:45
fit together okay now that i've covered
09:47
many of the different pieces of stone's
09:49
business and their future goals of
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turning these pieces into one unified
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fintech and e-commerce ecosystem let's
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take a look at their latest financials
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from quarter 2 of 2021 here are some
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important highlights they have the
10:01
highest total payments volume growth in
10:03
the industry largely driven by small and
10:05
medium-sized businesses and they just
10:07
added a record number of them to their
10:09
client list their payments and software
10:11
revenues are growing fast with their
10:13
subscription revenues growing ninety
10:15
percent year over year and their
10:17
revenues from transactions growing by
10:19
almost 60 percent year over year stone
10:22
says that they're already seeing the
10:23
value of acquiring links and are focused
10:25
on integrating its software back into
10:27
the rest of their solutions and
10:29
importantly there's a big issue with
10:31
their credit operations that was driven
10:33
by higher levels of non-performing loans
10:36
and non-performing clients let's talk
10:38
about this right now because i think
10:39
it's the biggest driver of their stock
10:41
price falling over the last quarter my
10:44
basic understanding of this issue is
10:46
that merchants have to put up a certain
10:47
amount of collateral to get a business
10:49
loan or credit line that collateral is
10:52
registered with one of a few registries
10:54
in brazil so this registry isn't
10:56
something that stone built it's a new
10:58
collateral system that they have to
10:59
integrate with and keep up with as it
11:01
changes over time due to a malfunction
11:04
in these registries of receivables
11:06
merchants could put up collateral with
11:07
stone and then go apply somewhere else
11:10
for financing and reuse that same
11:12
collateral because these registries
11:14
aren't talking to each other then when
11:16
it comes time for stone to take payments
11:17
on the loan or take from a client's
11:19
collateral they found that the client
11:21
can't repay the loan and the collateral
11:23
is at least partially gone because the
11:25
client had used it to secure another
11:27
loan by using a different registry so a
11:30
lot of this earnings report touches on
11:31
stone's lessons learned and the actions
11:33
that they're taking to remediate this
11:35
situation from temporarily stopping
11:37
credit disbursements to increasing the
11:39
amount of money they need to put aside
11:41
to cover these unpaid loans this money
11:44
comes out of their total revenues so to
11:46
fix this issue in the future they're
11:48
bringing in a more experienced team to
11:49
improve their credit scoring and risk
11:51
assessment changing their policies
11:53
around accepting and recovering
11:54
collateral and partnering with other
11:56
companies to spread around the risk the
11:58
big lesson learned here for us investors
12:01
is that fintech companies in emerging
12:02
markets come with real risks brazil's
12:05
collateral registries not talking to
12:07
each other is a real thing that happened
12:09
and it cost stone and their investors a
12:12
lot of money i'm not a financial advisor
12:14
but in my opinion this risk is now at
12:16
least partially priced into the stock
12:18
stone has been taking corrective action
12:20
to fix it for a quarter now and we
12:22
should look to see some of the results
12:24
of those actions when they release their
12:25
next earnings report in just a few weeks
12:28
taking a step back the rest of stone's
12:30
growth is awesome their total payment
12:32
volume from small and medium-sized
12:34
businesses has grown by more than 90
12:36
percent year year-over-year
12:38
micro-merchants and individuals are
12:40
serviced through a sub-brand of stone
12:42
called ton and total payment volume for
12:44
ton grew by a whopping 27x
12:47
year-over-year that's over an 18 percent
12:50
increase in total payments quarter over
12:52
quarter it's also important to recognize
12:55
that this is good healthy growth stone
12:57
added over 47 000 new smbs and over 140
13:01
000 micromerchants to their platforms
13:03
this past quarter and the average
13:06
payment volume per client has gone up as
13:08
well so more users and more payments per
13:11
user nearly half of all the small
13:13
businesses on stone are active in
13:15
multiple financial solutions and that
13:17
number is steadily increasing over time
13:19
this is important because it shows us
13:21
that stone is benefiting from network
13:23
effects meaning they're acquiring new
13:25
clients once but making money off them
13:27
in multiple ways by cross-selling and
13:29
upselling them on other financial
13:31
services which lowers their total
13:33
customer acquisition costs substantially
13:36
as a result the number of payments total
13:38
payment volumes and total account
13:40
balances with stone are up almost 4x
13:43
year over year
13:45
here's what i would call the kathy
13:46
woodslide kathy wood often says that she
13:49
looks for companies that are investing
13:51
in themselves to dominate their markets
13:53
in the future at the cost of sacrificing
13:55
profits today investing in people and
13:57
skills is always a good thing this slide
14:00
shows us how stone is doing just that
14:02
they've almost doubled their sales
14:04
technology and client services teams
14:06
they've also almost tripled their
14:08
marketing spend which does make me a
14:10
little nervous but a lot of this
14:11
marketing spend is probably to keep
14:13
brand awareness as high as possible that
14:15
way as new businesses come online
14:17
they'll be more likely to try out stone
14:19
solutions first since that's the name
14:21
they'll be the most familiar with this
14:23
is definitely something we should be
14:24
keeping an eye on as investors and
14:26
according to their overall quarterly
14:28
data that appears to be working 45
14:31
growth in small business clients year
14:33
over year almost a 10x in active micro
14:36
merchants and almost a 60 increase in
14:38
total payments volume here's the impact
14:41
of that credit and collateral problem
14:42
that i just talked about total revenue
14:44
is down by eight percent from a year ago
14:47
because of all the money they have to
14:48
keep to the side and the costs of
14:50
solving the problem itself this issue is
14:52
what's causing their costs and expenses
14:55
to be much higher than usual driving
14:57
their margins and their net income
14:58
straight down so our investment thesis
15:01
in stone depends on whether or not we
15:03
think that they'll be able to solve this
15:04
problem in the near term or whether
15:06
they'll keep bleeding money on these
15:08
loans we should get a better gauge of
15:10
how they're handling this in their next
15:11
earnings call in a few weeks so i'll
15:13
save the rest of my analysis on their
15:15
financials until then and if there's
15:17
something worth updating you on i'll
15:19
make a follow-up episode as usual for
15:21
now comment below or tweet me at ticker
15:23
symbol you with your thoughts on stone
15:26
is this the kind of stock you expected
15:28
warren buffett to be holding what about
15:30
kathy wood are you interested in this
15:32
stock yourself i'm excited to hear your
15:34
thoughts speaking of the stock it's
15:36
climbed over 20 percent in the last four
15:38
trading days marking at least a
15:40
temporary reversal from its steep
15:42
downward trend over the last eight
15:44
months can it go lower again absolutely
15:47
i'm not a financial advisor and this is
15:49
not financial advice but do i think that
15:51
right now could be a good time to buy
15:53
stone stock absolutely because i believe
15:55
that they'll be able to solve this
15:57
credit collateral issue and i think
15:59
their acquisition of links and
16:00
partnership with banco inter will pay
16:02
off for years to come that's why i've
16:04
just added this stock to my 100 dollar
16:07
public portfolio that i'll start
16:09
covering when this channel hits one
16:10
hundred thousand subscribers i'm
16:12
building that portfolio from scratch to
16:14
compete directly with rk arc invests
16:17
flagship innovation fund so if you're
16:19
interested in jumping on that wild ride
16:21
with me consider liking this video and
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subscribing to the channel with all
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16:30
like stone as well as exactly what i'm
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putting into my portfolio each month it
16:34
takes me a few days to put together each
16:36
episode so if you'd like access to my
16:38
trades as they happen instead of waiting
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these stocks to pop 20 or more consider
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supporting the channel as a patron on
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16:48
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16:55
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16:57
if that's not really your thing no
16:59
problem i hope to run this portfolio
17:01
project for at least the next five years
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and you'll be able to follow along right
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here on the channel that invests in you
17:07
so thanks for watching and until next
17:09
time this is ticker symbol you my name
17:12
is alex reminding you that the best
17:14
investment you can make
17:16
is in you