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By John Ballard, Jeremy Bowman, and Jennifer Saibil, Fool.com
The bull market continues to march forward, with the S&P 500 index up 38% since the end of 2022. It's been fueled by tech stocks, but beaten-down names in e-commerce and travel have outperformed the index and are still trading off their previous highs.
Read why these three fool.com contributors believe Carnival (CCL), Shopify (SHOP), and MercadoLibre (MELI) are timely buys today.
The tide is rising
Jeremy Bowman (Carnival): Shares of Carnival, the world's largest cruise line, have been riding the waves up and down for some time after crashing during the pandemic. Investors seem to be unsure if the company can return to full health after taking on so much debt and diluting shareholders to survive the COVID crisis.
Meanwhile, the cruise industry is notoriously risky as economic weakness, black swan events like the pandemic, and natural disasters can all sink cruise stocks.
However, June could prove to be a prime buying opportunity for Carnival stock. First, we're entering peak travel season, and recent reports from airlines and online travel agencies like Booking Holdings indicate travel demand remains on the rise. U.S. airlines are forecasting record summer travel up 6.3% from last year, which is reflecting a strong recovery from the pandemic.
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Investors will also be paying close attention to the Federal Reserve's rate-setting meeting later this month. Signs that it could decide to lower interest rates would give Carnival stock a boost. That would lower rates on its variable debt and make it easier to refinance its fixed-rate borrowings.
Lastly, we'll also get an update on the business' performance later this month when the company reports second-quarter earnings.
Carnival has shown strong momentum in recent quarters, including record revenue and booking levels, and we'll get some insights into the key summer travel season. The company also has a pattern of beating estimates in its recent reports as well.
The cruise company is still down 15% from its 52-week high even as the broad market is setting new records. With a strong earnings report and some help from the macro economy, this top travel stock could finish June considerably higher.
This e-commerce company is still going strong
John Ballard (Shopify): Shopify is everywhere online. It helps millions of merchants across 175 countries set up online storefronts, and it has delivered tremendous growth in recent years.
Shopify is a solid business. It generates recurring revenue through subscriptions to its platform, but also makes money from other services, including shipping labels, the Shopify App Store, and payment processing. It shares in the success of its merchant customers, which is key to its own success.
Annual revenue has exploded from $389 million in 2016 to over $7 billion in 2023. It continues to grow at double-digit rates because the global opportunity is massive. There are roughly 400 million small and medium-size businesses worldwide, which can power Shopify's business for many years.
One reason more businesses will sign up for Shopify is innovation. The company is starting to implement artificial intelligence in its services to help merchants make data-driven decisions in a timely manner. This could be a valuable tool down the road for small businesses.
Shopify is also seeing success in attracting larger enterprises to the platform. Its business-to-business gross merchandise volume more than doubled year over year in the first quarter, which is pointing to a big opportunity.
The stock is up 76% since the end of 2022, but it's still down 66% from its previous high. With the premium taken out of the stock's valuation, investors are getting a fair price for this e-commerce leader.
An e-commerce and fintech powerhouse
Jennifer Saibil (MercadoLibre): MercadoLibre stock has crushed the market over its lifetime, and even though it's not a young company anymore, it's still demonstrating massive growth with much more to come.
First and foremost is its e-commerce business. Like Amazon in the U.S., MercadoLibre is the dominant e-commerce player in its 18 Latin American markets. It's maintaining very high growth, including a 71% (currency neutral) year-over-year increase in gross merchandise volume in the 2024 first quarter.
The business benefits from a flywheel effect: It continues to invest in its logistics network and delivery capabilities, leading to faster shipments, and that leads to higher sales, stronger loyalty, and greater scale.
It also recently launched a membership program similar to Amazon Prime to generate more engagement and encourage shoppers to rely even more on MercadoLibre for their regular shopping.
The company started a fintech segment to help the underbanked population in some of its markets access its platform, and that has turned into a high-growth, high-momentum business with many new services. It offers digital payments, credit cards, other credit products, and more, and millions of customers are now on its fintech platform.
Monthly active users increased 38% year over year in the first quarter to 49 million. Total payment volume was up 86% over last year, and assets under management increased 90%.
There are many directions in which MercadoLibre can take this business, and it's expanding into new services all the time. It recently applied for a bank license in Mexico to open up its first attempt at a proper bank, and its goal is to become the largest digital bank there. That's a broad ambition, and the company could turn into a Latin American financial powerhouse.
Overall, MercadoLibre reported a 94% increase in revenue in the first quarter along with rising profits. These results aren't unusual, and with its reach and opportunities, it should be able to keep it up for a long time.
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