A market sell-off never feels good, but the smartest investors know it also represents an opportunity. After you get over your initial worries, your next step should be to look for bargains.
If the market continues to fall in the coming weeks and months, Costco Wholesale (NASDAQ: COST), MercadoLibre (NASDAQ: MELI)And Shopify (NYSE:SHOP) are three stocks to keep an eye on. They may seem expensive right now, but if they fall, you should be ready to pounce.
1. The king of storage models
If you’re one of the 134 million cardholders who shop at Costco Wholesale, you’re probably sold on the warehouse giant’s low prices and service. More and more shoppers continue to jump on the Costco bandwagon, resulting in higher sales and profits despite inflation.
Membership grew 7.8% year over year in the third quarter of fiscal 2024 (ended May 12), and fee revenue increased 7.6%. Revenue increased 9.1% in the quarter, driven by a 6.6% increase in comparable sales (comps). Earnings per share (EPS) also increased 29% to $3.78.
The retailer’s strong momentum has continued into the current quarter. Costco provides monthly updates on certain metrics, and sales in July rose 7.1% year over year, with comparables up 5.2%. E-commerce has been growing rapidly for the company, with sales from that channel increasing 20% last month.
Although Costco suffers from customers not purchasing larger and more expensive items, customers still flock to its big-box clubs to get the most out of their membership, which is why customer traffic increased 6.1% during the quarter while average sales remained roughly the same.
The company received positive media coverage when it announced a special dividend of $15 per share. And it recently increased its membership fee from $60 to $65. Management had postponed this price increase as shoppers struggled with inflation, but the company believes it can provide greater value to its members by investing the revenue from the increase in improving the business.
The one factor that usually holds investors back is Costco’s valuation. Shares trade at a premium of 53 times trailing 12-month earnings. If Costco is dragged down by a broad market sell-off, the stock will undoubtedly be attractive.
2. Promoting e-commerce in Latin America
MercadoLibre is a global leader in e-commerce, but you may not have heard of it because of its focus on Latin America. It serves 18 countries with an online business similar to Amazon‘s and also offers popular fintech services to complement its e-commerce business.
Although MercadoLibre just celebrated its 25th anniversary, it is still growing like a much smaller and younger company. It benefits from operating in a huge market that is still under-tapped in e-commerce. And after years of building a large fulfillment network, the company can deliver its products to customers quickly and inexpensively.
Gross merchandise volume (GMV) has grown at a staggering 28% annual growth rate since 2016, and grew 20% year-over-year in Q2, or 83% at constant currency. Engagement is increasing as there are more active shoppers, more shoppers are shopping across different categories, and shopping frequency is higher.
Its fintech business is growing even faster: total payment volume (TPV) increased by 36% last quarter (86% at constant currency). MercadoLibre continues to launch new services as it gains customers and sales, creating more opportunities for cross-buying and engagement. One of its latest projects is the opening of a digital bank in Mexico, where it already has a significant presence in digital payments, and it plans to become the leading digital bank in the country.
MercadoLibre is in growth mode and appears to be a good buy even at the current price. The stock has held relatively steady during the recent volatility, but every dip is an opportunity that investors shouldn’t miss.
3. Driving the e-commerce revolution
Shopify is the name behind many online stores and provides its merchant customers with the infrastructure to capitalize on the long-term growth of e-commerce. The company has expanded its offerings from full-service e-commerce stores to solutions and packages for businesses of all sizes and is also gaining traction with large enterprise clients. As e-commerce continues to grow as a share of total retail sales, Shopify is poised to maintain its impressive momentum.
But the company has spent the past few years recovering from the mistakes it made during the pandemic. Like many other companies that expanded aggressively to meet rising demand in the early months of the global crisis, it had to scale back and focus on profitability when growth during the pandemic proved unsustainable.
Shopify’s latest earnings report suggests continued progress. The company just reported phenomenal second-quarter results that exceeded expectations across the board, with revenue up 21% year over year and GMV up 22%.
Profitability metrics were also excellent, with gross margin increasing year-on-year from 49.3% to 51.1%, free cash flow increasing from $97 million to $333 million, and operating profit reaching $271 million, compared to a loss of $1.6 billion in the prior-year quarter (due to the sale of the logistics business).
The stock trades at a premium of nearly 12 times trailing 12-month sales and 52 times forward earnings. While Shopify is already a great growth stock, it will be a no-brainer to buy if shares are dragged down by a general market decline.
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John Mackey, former CEO of Whole Foods Market, a subsidiary of Amazon, is a member of The Motley Fool’s board of directors. Jennifer Saibil holds positions in MercadoLibre. The Motley Fool holds positions in Amazon, Costco Wholesale, MercadoLibre, and Shopify and recommends these companies. The Motley Fool has a disclosure policy.
3 Stocks to Buy If the Sell-Off Continues was originally published by The Motley Fool
