The S&P 500 is hitting new highs, but that doesn’t mean every great stock is soaring this year. There are all kinds of reasons a top stock could move down in a strong bull market, and sometimes, that creates investing opportunities.
Consider MercadoLibre (NASDAQ: MELI) and Dutch Bros (NYSE: BROS). Both of these stocks have incredible long-term potential, but they’re 37% and 49% off their highs, respectively. Here’s why you should buy them on the dip.
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1. MercadoLibre: 37% off highs
MercadoLibre is a Latin American e-commerce superstar. It operates in 18 countries in the region, with a complete platform including logistics, media, and a payments business. Its payments and media businesses have actually become major growth drivers on their own, and the ecosystem puts MercadoLibre in an excellent position to benefit from the shift to digital in Latin America.
It’s the largest e-commerce company in its region, and it’s building what it expects to be the biggest digital bank in the area as well. It has the most comprehensive logistics program, with 77% of shipments (not chosen to be slow) delivered within 48 hours. Management sees the company’s edge in its ecosystem, as artificial intelligence provides consumer recommendations and informs accurate digital ads, and customers on the platform can easily pay through the payments system. That even leads to more users buying insurance policies through the financial platform.
There are 670 million people in Latin America who make up MercadoLibre’s addressable market, and the median age is a decade younger than in the U.S. and China. They are also highly connected digitally, even though they lag other regions in e-commerce and digital banking penetration.
MercadoLibre consistently reports high growth, including a 50% increase in revenue year over year in the second quarter, a 56% increase in total payment volume, and a 44% increase in gross merchandise volume.
The stock is down right now because profitability has declined for the past two quarters. Management says it needs to invest to build and grow more, but the market was disappointed.
As soon as profitability starts to increase, the price could go right back up, which is why now is the right time to buy.
