Investors have thousands of choices when it comes to stocks to pick. Even when limiting themselves to one subset of stocks, such as the consumer names, investors may still have difficulty boiling down their decision to three top stocks.
Nonetheless, some stocks have succeeded at growing market share and driving returns through innovations. They also may create ecosystems that foster virtuous cycles which reinforce the success of their businesses.
Three stocks that have excelled at this are Amazon (NASDAQ: AMZN), MercadoLibre (NASDAQ: MELI), and Shopify (NYSE: SHOP), and as they continue to serve more customers, investors will likely continue reaping the benefits.
Amazon
The public knows Amazon best for its unprecedented success on the e-commerce front. Its reach in e-commerce has made it a household name among consumers.
Amazon’s financials make it unclear whether that business earns a profit. However, it fosters other revenue streams such as subscriptions and advertising that generated tens of billions in revenue at higher margins.
Additionally, its Amazon Web Services (AWS) segment, originally meant to promote e-commerce, inadvertently gave birth to the cloud-computing business. Despite rising competition, it remains the leading cloud-computing company and accounts for most of Amazon’s operating income.
These successes led to $405 billion in net sales in the first nine months of 2023, rising 11% compared with the same period in 2022. Also, slower growth in operating expenses allowed Amazon to return to profitability. The $20 billion in net income is up from a $3 billion loss in the same year-ago period.
Amid such improvements, Amazon stock rose by about 85% in 2023. And despite a price-to-earnings (P/E) ratio of 79, its valuation is close to historical lows over the last few years. As both e-commerce and cloud computing continue to recover, it should bode well for Amazon’s growth prospects in 2024.
MercadoLibre
MercadoLibre operates exclusively in Latin America and, thus, may not be a household name to U.S. investors. Nonetheless, it gave birth to the e-commerce industry in Latin America in the late 1990s and, like Amazon, led to other business segments.
Latin America is primarily a cash-based society. Hence, the company formed Mercado Pago to offer fintech solutions to allow cash-based customers to buy online. This enterprise later became a business of its own and evolved into the region’s leading fintech company.
Likewise, Latin America offers limited shipping options. The company addressed that by launching Mercado Envios to handle fulfillment and shipping. Mercado Envios and Mercado Pago work separately and together to reinforce each segment and grow MercadoLibre as a whole.
That ecosystem drove over $10 billion in revenue in the first three quarters of 2023, a yearly increase of 36%. During this time, MercadoLibre kept general and administrative expense growth in check and reduced its provision for doubtful accounts. This led to $822 million in net income during the nine-month period, well over the $317 million during the same time frame in 2022.
As investors took notice of such improvements, MercadoLibre rose by almost 90% in 2023. Despite turning profitable just last year, it supports a P/E ratio of 80, a valuation closely approximating that of better-known e-commerce conglomerate Amazon. As MercadoLibre’s businesses foster further growth across Latin America, the stock price should continue to rise in 2024 and beyond.
Shopify
Shopify is in the highly competitive e-commerce-platform business. It stands out for its ease of use and extensive ecosystem. The platform allows entrepreneurs of all sizes, with no coding skills, to build e-commerce sites, and gives them the flexibility to tailor the site’s appearance.
Moreover, Shopify’s ecosystem provides online sellers with numerous functions essential to succeeding as an online store. To this end, they can more easily process transactions with Shopify Payments or market with Shopify’s social media and email-marketing capabilities.
Furthermore, while it can serve entities of all sizes, Shopify Plus enhanced its value to large and high-growth enterprises. Shopify Plus allows for more rapid onboarding and has extra features such as wholesale-channel solutions or the ability to manage sales and inventory.
Additionally, reversing its plans to build a logistics business relieved Shopify of a tremendous financial burden. Thus, its $4.9 billion in revenue in the first three quarters of 2023 surged 27% higher. And while Shopify lost $525 million during that time frame, it suffered a $1.3 billion impairment charge from the sale of the logistics business that led to the loss.
Furthermore, Shopify earned $718 million in the third quarter, and with the company again turning a profit, its stock increased by almost 140% in 2023. Although the recent losses leave it without a trailing P/E ratio, its price-to-sales (P/S) ratio is now at 15, a yearly high. That sales multiple is also low by historical standards, indicating the stock will probably keep moving higher in 2024.
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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. Will Healy has positions in MercadoLibre and Shopify. The Motley Fool has positions in and recommends Amazon, MercadoLibre, and Shopify. The Motley Fool has a disclosure policy.
If I Could Only Buy 3 Stocks in 2024, I’d Pick These was originally published by The Motley Fool
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