From PayPal to MercadoLibre: 3 top stocks that just went on sale
Many quality companies are caught in the wave of mass sales of stocks sweeping the market. Diversified industrial giant’s share price caterpillar (CAT 2.08% ), Latin American e-commerce titan Free Mercado (MELI 5.71% ), and fintech leader Pay Pal (PYPL 3.40% ) and have all fallen in price by around 20% in the past six months. From their 52-week highs, both PayPal and MercadoLibre are down 40% or more.
Here’s why the top three stocks are worth buying on sale now.
1. Caterpillar: value and income play a role
Caterpillar sells its equipment through a network of dealers. When dealer inventories are high, it means that dealers either have too much inventory and not enough customer demand, or they expect high demand, so they increase inventory. When inventory is low but perceived demand is high, it means customers are likely to order more equipment from Caterpillar. This second scenario seems to be in play at the moment.
In the third quarter, Caterpillar dealers reduced their inventories by $ 300 million. Caterpillar said dealer inventories are roughly stable from their end-2020 level, down $ 2.9 billion from 2019. For context, consider 2020 to have been the most significant reduction in dealer inventory since 2013. All this to say that dealer inventory is still very low.
Dealer inventories are important because they show that while Caterpillar has performed mostly poor this year, it could still be on the verge of a multi-year cyclical recovery with the economy as a whole. Variants of COVID-19, inflation and geopolitical risk could put at risk exactly when this happens. But in the meantime, investors will receive a dividend that pays 2.3% and knowing that Caterpillar has increased its dividend every year for 27 consecutive years.
2. MercadoLibre: the e-commerce game
South American e-commerce giant MercadoLibre has seen its share price cut in half in just three months. Yet even with this sale, MercadoLibre’s stock has still nearly six-folded over the past five years. The company’s third-quarter revenue broke a new record and was, coincidentally, six times that of the third quarter of 2017. The company is profitable, growing rapidly and doing the same as Amazon, PayPal and Shopify in a rapidly growing market. So why did Wall Street suddenly turn sour on MercadoLibre?
For starters, MercadoLibre recently announced a large stock offering, which means it will sell stocks to raise funds to finance its growth. The company is also not likely to increase its profits significantly in the short term, as it spends a lot of money on growth. MercadoLibre is the industry leader in a market that still needs time to undertake its digital transformation. MercadoLibre only has a valuation of $ 53 billion, which is less than a quarter of what PayPal offers. Given that the Latin American e-commerce market is still in its infancy, MercadoLibre looks like a great buy now.
3. PayPal: the fintech game
Speaking of PayPal, the digital payment solutions provider is yet another well-known growth stock treading just above its 52-week low. The company’s top-line growth has slowed, and its earnings and free cash flow (FCF) are stagnating.
Like MercadoLibre, it’s hard to imagine that PayPal’s business won’t grow in the future. PayPal is a leader in business-to-business payment solutions, e-commerce, and even peer-to-peer payments through Venmo.
On the one hand, the massive sale of higher-growth, lower-profit securities such as Square (SQ 4.99% ) logic. Square doesn’t generate as much cash or profit as PayPal, so its investment thesis is largely tied to revenue growth. I agree with my colleague Will Healy that investors shouldn’t ignore the advantages of PayPal amid Square’s competitive moves. That PayPal’s stock price fell 40% from its peak when it turned into an incredibly profitable business just doesn’t matter.
Quality options to choose from
Caterpillar, PayPal, and MercadoLibre are completely different companies, but they all belong to growing industries. Caterpillar’s exposure to energy, construction and the overall pulse of global economic production is something that will go through cycles but is expected to grow over time. E-commerce in Latin America and the war on cash are trends that are expected to continue to develop as existing technology takes root in developing countries and new technologies bring more of the global economy to life. line.
Investors looking for good deals would do well to find their preferred industry and then select companies that have a real chance of shaping and growing that industry in the future. Whether it’s researching gems in developing markets or just buying from a leader like PayPal, there are plenty of ways to profit from selling in a way that suits your risk tolerance.
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.