Investors can own as many stocks as they want, whenever they want, and happily ever after. After all, more shares means more diversification. Along these lines, The Motley Fool suggests owning at least 25 different stocks at any given time.
Sometimes, however, it is illuminating to think about which stocks you would buy if you could only buy a small number of them. Such an exercise forces you to identify the most promising risk-reward scenarios in the market.
With that in mind, here’s a look at the three names I’d buy this year if I only had the space and money to add three more tickers to my portfolio. (Of course, these picks only make sense to you if they improve the diversification of your portfolio rather than make it less balanced.)
1. Free Market
Free Market (NASDAQ: MELI) is often referred to as the Amazon of Latin America. It is not an unfair comparison, but it is an incomplete one.
MercadoLibre is also related to eBay, ShopifyAnd PayPal. The wide range of tools has helped the company become South America’s top name in physical store and e-commerce technology. The company facilitated nearly $41 billion in payments in the first quarter of this year and also served as an intermediary for $11.4 billion in sales of goods and services. Subsequent revenue of $4.3 billion in the quarter was 36% higher than last year, leading to a 71% improvement in net profit.
And that’s just the beginning. In many ways, South America is now where North America was about 20 years ago, when high-speed internet was still relatively new and smartphones were just an idea. In the same way that Amazon was in the right place at the right time with the right business model, MercadoLibre is positioned to benefit from the growing mobile technology boom in the region.
And the is booming. Market researcher GSMA says 75 million people in South America have become mobile internet users in the past five years, while Canalys reports that smartphone shipments in the region rose 26% year-on-year in the first quarter, following 20% growth in the fourth quarter.
Yet only 65% of the continent’s population currently uses a smartphone that supports wireless broadband. The rest will come along though. GSMA believes mobile internet penetration in South America will grow to 72% by 2030, with most of these connections likely to be ultra-fast 5G by then.
As e-commerce grows with consumers’ increasing online presence, Americas Market Intelligence expects the Latin American e-commerce market to grow 24% this year, then another 21% next year and then regain that pace in 2026.
MercadoLibre is arguably better positioned than any other name to benefit from this growth.
2. Alphabet
Few investors would deny that Google’s parent company Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) is still a force to be reckoned with. But many people also seem to assume that the glory days of peak growth are over. After all, the search engine industry is fully mature and full of credible competition like MicrosoftBing, powered by artificial intelligence.
However, if you think Alphabet has run out of growth engines, think again. The cloud computing venture is an example. While still only a fraction of the size of Amazon and Microsoft’s cloud businesses, this segment still generated 28% revenue growth in the first quarter of the year.
Better yet, Google Cloud is now consistently and meaningfully profitable, generating $900 million in operating profit in the three-month period ending in March. Mordor Intelligence expects the global cloud computing market to grow at an annual rate of more than 16% through 2029, so Alphabet’s cloud segment offers huge profit promise.
According to ratings agency Nielsen, the company’s YouTube service is viewed more in the United States than conventional streaming services such as Netflix or Walt Disney‘s Hulu and Disney+. YouTube’s revenue improved 21% year over year in the first quarter, as Alphabet continues to figure out how to become a destination platform within the highly fragmented and often unprofitable streaming space.
Google Search’s advertising business may not be as stagnant as some suspect, either. Ad revenue grew by more than 14% in the first quarter of the year, helped by the search engine’s continued reach. GlobalStats says Google still handles about 90% of the world’s web searches, as it has for more than a decade.
So Alphabet seems stronger than ever. The fact that stocks are rising despite many expressed concerns should tell you everything you need to know about what investors expect for the near future.
3. Bank of America
I would round out my limited stock picks for 2024 with a new position in bank of America (NYSE: BAC).
It’s not an easy name to get excited about owning right now. The stock has been underperforming since the start of 2022, weighed down by the economic malaise caused by skyrocketing inflation. While high interest rates generally boost banks’ profit margins, the subsequent trade-offs from that dynamic are reduced demand for loans and higher loan defaults and delinquencies.
BofA’s provision for credit losses grew to $1.3 billion in the first quarter, while net interest income fell 3% to $14 billion, pushing earnings per share down to $0.83 from $0.94 in the first quarter last year. Other industries, such as corporate banking and investment management, are also facing headwinds.
However, what is largely lost in all the noise is that nothing about the banking sector’s current challenges is new. This is a highly (and predictably) cyclical business tied to an equally predictably cyclical economy.
We don’t know exactly when inflation will finally decline or when the global economy will pick up again. Doing however, know that we want to be positioned in BofA before it becomes clear that this recovery is happening. Like most stocks, it tends to move predictively rather than reactively.
In the meantime, you’re plugging into a ticker that pays a healthy, reliable dividend. While you can certainly find stocks with higher dividend yields than Bank of America’s current forward-looking yield of just over 2.4%, this large bank is protecting its business and balance sheet in a way that ensures it can continue to fund and grow its dividend payout.
The annual dividend payment of $0.96 per share is less than a third of the expected earnings per share of $3.25 this year, and even relatively less than the $3.59 estimate for next year. That’s a nice safety net for anyone looking for reliable investment income.
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*Stock Advisor returns from June 24, 2024
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. 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 positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Amazon, Bank of America, MercadoLibre, Microsoft, Netflix, PayPal, Shopify, and Walt Disney. The Motley Fool recommends eBay and recommends the following options: long Jan 2026 $395 calls on Microsoft, short Jan 2026 $405 calls on Microsoft, short Jul 2024 $52.50 calls on eBay, and short Jun 2024 $67.50 calls on PayPal. The Motley Fool has a disclosure policy.
If I Could Only Buy 3 Stocks in 2024, These Are The Ones I’d Pick, originally published by The Motley Fool
