A bull market is coming: 2 high-conviction growth stocks to buy now and hold
The stock market is currently clouded by bearish sentiment. With soaring inflation and rapidly rising interest rates, many companies have already seen their growth falter, and the situation could worsen in the short term. This uncertainty sent the S&P500 tumbling in a bear market, with the index currently 21% off its peak.
Fortunately, there is good news. Every past bear market has ended in a new bull market, and the S&P 500 has always recouped its losses. Even better, the current bear market is a great time to buy stocks, and Wall Street seems to have high conviction in MercadoLibre (MELI -4.12%) and To block (SQ 0.61%). Both stocks have a consensus “buy” rating among analysts, and the median 12-month price target on MercadoLibre implies a 46% upside, while the median price target on Block implies an upside of 86%. %.
Here’s why investors should buy these growth stocks today.
1. MercadoLibre: a key player in commerce and digital payments in Latin America
MercadoLibre operates the most visited online marketplace in Latin America and has consolidated this leadership with adjacent offerings such as logistics and digital advertising. These services accelerate the flywheel effect created by its popularity with consumers, bringing more merchants (and inventory) to market, which naturally boosts buyer engagement and more. This virtuous circle should keep MercadoLibre ahead of its peers for years to come.
Additionally, MercadoLibre’s fintech business, Mercado Pago, operates the third most popular digital wallet in Latin America. This business is poised for rapid growth in the coming years as internet penetration increases rapidly in the region while access to bank accounts and debit cards remains relatively low. Mercado Pago also benefits from a flywheel effect created by adjacent offerings such as consumer lending, merchant lending and asset management.
In short, MercadoLibre taps into two huge markets – commerce and digital payments – and its strong market position in both spaces has generated outstanding financial results over the past year. Revenue increased 60% to $8.8 billion, and the company recorded a generally accepted accounting principles (GAAP) earnings of $4.73 per diluted share, up from a loss of $0.05 per diluted share the previous year.
Going forward, MercadoLibre is well positioned to maintain its high growth trajectory. According to eMarketer, e-commerce retail sales in Latin America will soar nearly 19% to $167 billion this year, making it the second fastest growing market in the world. And Statista says that figure could reach $260 billion by 2025. This should naturally drive the growth of digital payments. In fact, the Boston Consulting Group says payments revenue in Latin America could total $190 billion by 2025.
With that in mind, MercadoLibre stock is currently trading at 5.1 times sales, an absolute bargain compared to its five-year average of 13.2 times sales. That’s why this growth stock is a screaming buy.
2. Block: a disruptive force in commerce and consumer credit
Block divides its operations into two segments: Square and Cash App. Square includes an integrated suite of hardware, software, and financial services that help merchants grow their businesses across physical and digital storefronts. This comprehensive offering sets Square apart from traditional payment processors and dramatically simplifies commerce for merchants.
Similarly, Cash App simplifies financial services for consumers, allowing users to deposit funds, spend money and earn rewards, and invest in stocks and cryptocurrencies from a single platform. This broad functionality has led to high adoption. During the first half of the year, the Cash app was the most downloaded mobile finance app in the United States, according to Apptopia.
Block’s disruptive approach to commerce and consumer credit has resulted in strong financial results over the past year, despite macro concerns. Gross profit soared 37% to $5.1 billion and free cash flow jumped 178% to $563 million. But shareholders have reason to believe Block can maintain its momentum in the years to come as management executes an ambitious growth strategy.
Specifically, Block plans to energize its Square and Cash App ecosystems by integrating the two with Afterpay, the buy now, pay later (BNPL) platform it acquired earlier this year. In fact, the company has already made quite a bit of progress. Square merchants in the US can now accept BNPL payments online and in person, and Block recently added a Discover tab to the Cash app, allowing consumers to browse products and make purchases from Afterpay sellers. in the digital wallet. Later, as the Cash app evolves into a commerce engine, Block plans to expand its digital advertising services by enabling brands to run targeted campaigns on the Cash app.
Currently, management pegs its addressable market at $190 billion in gross profit — $120 billion from Square and $70 billion from Cash App — meaning Block has barely scratched the surface of its potential. To that end, with stocks trading at a discount of 1.9 times sales, this growth stock has the makings of a rewarding long-term investment.