Why Nu Holdings Stock Rallied Today

The Motley Fool · 1d ago

Key Points

Investors are betting that Presidential candidate Flávio Bolsonaro will bring needed economic reforms to Brazil.
The right-wing candidate won a surprising majority ahead of a run-off election later this month.
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Shares of Nu Holdings (NYSE:NU) charged sharply higher on Monday, climbing as much as 15.1% in early trading. As of 1:10 p.m. ET, the stock was still up 13.3%.

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The catalyst that sent the fintech stock higher was the initial outcome of the primary elections in Brazil.

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Voters get their say

Brazilian presidential elections were held on Sunday. The initial outcome showed that neither current President Luiz Inácio Lula da Silva nor challenger Flávio Bolsonaro -- son of disgraced former President Jair Bolsonaro -- had secured enough votes for a 50% majority needed for an outright victory. As a result, the two will face a run-off election on Oct. 25.

However, with more than 99% of the votes counted, Bolsonaro won 47% of the vote, while da Silva captured 45.1%. The remaining votes went to a variety of challengers, forcing the run-off to be held later this month. Bolsonaro is favored to win, following a strong showing by other right-wing candidates, who won various gubernatorial or congressional races.

On the heels of the election results, the Ibovespa index (IBOV) -- Brazil's main stock index -- opened at a record high.

So what does this have to do with Nu Holdings? Bolsonaro campaigned on a business-friendly platform focused on lowering taxes and reducing government spending. If successful, his approach could result in lower interest rates, which -- in turn -- would be a boon for financial stocks, including Nu Holdings. Furthermore, lower interest rates would take some of the pressure off debt-laden consumers, thereby reducing late payments and defaults on unsecured debt.

And at just 21 times earnings, Nu Holdings stock is attractively priced.

Danny Vena, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nu Holdings. The Motley Fool has a disclosure policy.