Given a choice, most investors prefer to buy stocks during a dip rather than during (or after) a rally. Why pay more if you can do it less? Paying less ultimately means more profit.
Sometimes, though, it’s worth jumping into a stock while it’s on the move. There may not be a relapse soon. Waiting can ultimately be costly rather than helpful.
With that as a backdrop, here’s a look at three such surging stocks that we can now consider getting into despite their current strength. There is too great a chance of a more immediate benefit.
MercadoLibre
If you’ve never heard of it MercadoLibre (NASDAQ: MELI), do not worry. Many people haven’t done that. That’s because the company is only active in Latin America. But what a company it is!
MercadoLibre is often called the Amazon of Latin America, and it is not an unfair description. However, it is incomplete. In addition to online shopping centers and special company-specific shopping carts, this company also offers online and mobile payment services, plus logistics services to support these online activities. In many ways the company is just as similar Shopify, PayPalAnd eBay. In fact, in the early days it was more of an eBay clone.
More important for current and future shareholders is that MercadoLibre is in the right place at the right time with the right range of services.
How come? In many ways, South America is now where North America was twenty years ago. While the region has certainly had high-speed internet and cell phones for years, these things are only just starting to become commonplace in the region. Atlantico reports that internet penetration on the continent grew from 42% to 74% between 2012 and 2022. That’s a big change in just ten years.
However, access to the internet is still not universal. S&P Global Market Intelligence says only just over half of Latin American households have access to broadband services, while market research firm Phocuswright suggests that mobile phone penetration in Latin America will reach just 75% by 2025.
The point is that while the South American e-commerce industry may not yet be on par with North America’s, the stage is set for tremendous growth as the industry there matures. A forecast from Payments and Commerce Market Intelligence shows that the region’s e-commerce market is likely to grow 24% this year, 21% next year and again the year after. For its part, MercadoLibre is expected to grow its revenue by 33% this year, and then another 24% in 2025.
Connect the dots. All the pieces of MercadoLibre’s puzzle are finally falling into place. That’s why the stock is making progress. And there is much more progress to be made.
DesignKings
DesignKings (NASDAQ: DKNG) Shares are up more than 300% since the end of 2022, and are still within sight of a 52-week high in March. A move of that magnitude can certainly be intimidating for potential buyers.
Don’t be intimidated, though. This rally is likely to continue for a long time.
As you may already know, DraftKings is a sports betting stock. Although its roots are in the fantasy sports world, the lifting of the federal ban on sports gambling in 2018 has sparked a wave of legalization at the state level. At last count, sports betting is legal in some form or another in 38 US states.
But that doesn’t mean most of DraftKings’ revenue and earnings growth is in the rearview mirror, for a number of reasons.
First, two of the largest states in the country, Texas and California, do not yet allow sports betting. However, legalization measures continue to emerge in both states, and it seems reasonable that this will happen sooner or later.
Second (and perhaps more importantly), even when a state legalizes its presence, it takes time for DraftKings’ business to reach its maximum potential, just as it takes time for a gambler to become profitable once he becomes a DraftKings app user. The company reports that the average customer only becomes grossly profitable in the third year after being acquired, after they have already deployed for a while and tend to deploy more.
This is notable for one overarching reason: many of DraftKings’ customers are now just approaching or have only recently passed their third year as customers. Therefore, last year’s loss per share of $1.73 is expected to dramatically turn into a profit of $0.85 per share next year. Of course, the company is also bringing in more new users in the meantime, allowing profits to grow even further three years after they’re collected. This is a cycle of margin expansion that could last for years.
Walmart
Last but not least, add Walmart (NYSE:WMT) added to your list of stocks, you can still feel good about buying even if they are flying.
The world’s largest retailer just completed an incredible quarter. Revenue of $161.5 billion was not just an increase of almost 6% year-over-year, but handily exceeded estimates of $159.5 billion. Earnings of $0.60 per share also beat estimates of just $0.52, up 22% from the year-earlier comparison ($0.49 per share). U.S. same-store sales improved 3.8%, while e-commerce grew 21%.
In short, Walmart is firing on all cylinders. That’s why shares rose 7% on the day the report was published, pushing them deeper into record highs. It is now 63% above its mid-2022 low.
Don’t be too intimidated to dive in, though, at least after you’ve gathered the dust from last Thursday’s earnings results. More bullishness could be in store, despite the stock’s trailing twelve-month price-to-earnings ratio of over 27 (which is high by general market standards). You pay the premium you expect for reliability, quality and consistency.
While the company wasn’t in a position to do this just a few years earlier, the COVID-19 pandemic – and then the post-pandemic fallout – has in many ways proven to be a boon for the retailer. Walmart is one of the few retailers that has been able to maintain the availability of a wide range of items that are still sold at reasonably low prices. This is largely a result of its enormous scale and the influence it uses in dealing with its suppliers.
A year ago, for example, the company flat out told its consumer packaged goods suppliers that it would no longer pay their ever-rising prices. They had to find a way to limit their own costs, otherwise Walmart would start working with alternative brands.
Since 2020, Walmart has also attracted a large number of customers living in households earning more than $100,000. After all, with total consumer prices now 22% higher than four years ago, everyone is feeling the pressure.
Of course, these tailwinds could diminish as the economy returns to normal. So far, however, the underlying idea of value-oriented convenience seems to be the new norm, just as high prices continue to appear here. This clearly works to Walmart’s advantage.
Should you invest $1,000 in MercadoLibre now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James Brumley has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Amazon, MercadoLibre, PayPal, Shopify, and Walmart. The Motley Fool recommends eBay and recommends the following options: July 2024 short calls of $52.50 on eBay and short June 2024 calls of $67.50 on PayPal. The Motley Fool has a disclosure policy.
3 Rising Stocks I’d Buy Right Now Without Hesitation was originally published by The Motley Fool
