With the market down, many stocks are reaching prices we haven’t seen for some time. This fall comes even though many of these companies have made huge business gains over the past two years. Three no-brainer stocks I buy now are the alphabet (The Google -1.29%) (Google website -1.34%)And Shopify (store -7.02%)And MercadoLibre (milli -3.23%).
Each stock has a unique set of circumstances that got them to this point, but none of the circumstances will impede business growth over the next five years. As a long-term investor, I am less concerned about what the market is thinking now and more excited about what lies ahead. With Alphabet, Shopify, and MercadoLibre shares trading down 26.4%, 76.4%, and 58.5%, respectively, from all-time highs, the day presents a significant long-term buying opportunity.
With Alphabet, the main concern is the recession that is happening in the US, it derives 80% of revenue from advertising platforms (Google and YouTube), and advertising spend is usually cut during recessions. This focus has frightened many investors into selling Alphabet shares, even though the economy remains sluggish.
Regardless of whether a recession occurs or not, Alphabet will be a stronger company five years into the future. It is growing its revenue year-over-year by 23% and operating margin of 30%. As a result, Alphabet will generate incrementally larger cash flows due to strong growth and healthy margins, adding to its already massive cash pool of $134 billion.
Alphabet’s management uses its cash flow to buy back stock. Lower stocks mean higher earnings per share, dropping the denominator of the price-to-earnings (PE) ratio. If its valuation remains constant, the stock price must rise to offset the higher earnings.
When stock is undervalued, management’s buyback program can buy stock at a better value, which is now the case.
Alphabet is trading at just 21 times earnings, and it’s valuated very cheaply. Alphabet is a great buy today with a strong and growing business and a low valuation.
Shopify tools allow businesses of all sizes to carry out their operations online. Her business had a huge boom during the pandemic but has since plummeted. This slowdown has investors running for the hills.
From the first quarter of 2020 to the first quarter of 2022, revenue grew at an annual rate of 60%, yet the stock price fell below its pre-pandemic price. This price is meaningless, and investors would be wise to collect this stock before it rebounds. Management expects its growth to be higher in the second half of the year, so Shopify’s recovery may come quickly.
However, with the stock down nearly 80% from its all-time high, it will have to rise nearly four times in value to regain its previous high. It may take a while to set a new record, but it’s too cheap to ignore, with Shopify valued at less than 10 times sales. Over the past five years, Shopify has never traded for less than 12 times sales.
It’s hard to get out of the Shopify platform once you start the business, so you’ll continue to see growth as e-commerce becomes more popular. The odds that consumers will shop online less in the next five years are low, so Shopify will remain a solid business.
MercadoLibre is the ultimate powerhouse for business. The leading e-commerce provider in Latin America also has fintech, consumer credit, and freight logistics suites. Compared to Q1 2021, which saw 158% revenue growth, Q1 2022 was still stellar with 67% year-over-year growth.
Even more impressive is its fintech division, which saw 113% growth to $971 million in the quarter. The commerce division was less dominant, but saw its net revenue rise 44% to $1.3 billion. However, with over 600 million residents and an e-commerce penetration rate of 4.9%, MercadoLibre is far from fully penetrating its market opportunity in Latin America.
However, with the MercadoLibre valuation, investors may assume that business is shrinking. MercadoLibre’s (PS) price-to-sales ratio is just under five; It wasn’t less than six years ago in the last decade. On average, it trades about 10 times as much sales, so the stock has a lot of upside even if it returns to its usual valuation.
The last time MercadoLibre traded for less than five times sales was from November 2008 to April 2009, the bottom of the Great Recession. MercadoLibre almost doesn’t face the challenges it did when the entire financial system was on the verge of collapse, although the stock’s valuation indicates that.
MercadoLibre has a long way to go before its vision is complete; Investors should use double equity to pick up some stocks.
The three companies are valued cheaply, but that cannot be the only reason to buy the stock. Investors should examine the business. If you can find cheap stocks and a great job, you may have made an excellent investment. I think these three stocks fit that description.