Shares of Home Depot (HD 0.65%) have been a great long-term investment, and they've soared about 20% so far this year. Investors in the home-improvement chain have no reason to be upset with that performance.
But there are other stocks that have performed even better, and they could continue to outperform Home Depot in the coming years. MercadoLibre (MELI 2.49%), Illumina (ILMN 1.76%), and Best Buy (BBY 0.62%) are some examples, identified by three of our Foolish investors. Here's what you need to know.
Image source: Home Depot.
E-commerce leader in a growing market
Danny Vena (MercadoLibre): The Home Depot has provided investors with market-beating returns over the last decade, returning over 300%, compared to broader market gains of 60%. During that same time, however, Latin American e-commerce leader MercadoLibre has returned over 800%, and the best may be yet to come.
MercadoLibre began as an auction site where buyers and sellers exchanged goods, but the company has evolved into a full-service e-commerce powerhouse, providing the platform and tools necessary to help businesses succeed.
The company still offers a consumer auction site, but also provides fixed-price goods from many of the largest retailers in Latin America. MercadoLibre helps sellers set up and manage their online store, while providing logistics, shipping, and payment options in a market where e-commerce is still in its infancy.
In a region where shoppers don't typically have credit cards or even bank accounts, MercadoLibre's payment solution, MercadoPago, has outgrown its platform and is now used by a multitude of retailers, both on- and offline, while consumers even use the service to pay utility bills.
MercadoLibre has been growing like gangbusters, and as the economy improves in Latin America, that growth could accelerate. In its most recent quarter, revenue grew to $316 million, up 58% over the prior-year quarter. Registered users increased 21%, items sold jumped 63%, and payment transactions soared 63%, all year over year.
E-commerce in Latin America represents only 2.6% of retail sales, compared to 8.4% in the U.S., so there's still plenty of room for growth. Ay, caramba!
Success is in this company's DNA
Keith Speights (Illumina): Home Depot and Illumina have at least a few things in common. They're both tremendously successful companies with winning stocks. They're both arguably the best at what they do. And they both sell equipment that make doing things much easier than in the past.
Of course, there's a much longer list of differences between the two companies. Illumina is a pioneer of genomic sequencing systems and has been a true game changer in the field. Consider that the initial mapping of the human genome performed by the Human Genome Project cost $2.7 billion. Illumina's sequencing systems cut the cost to roughly $1,000 to map. The company's latest technology, NovaSeq, could eventually lower that price tag to $100.
As great as Home Depot stock has performed through the years, Illumina has done even better. Over the last 10 years, Illumina stock is up nearly 690% compared to Home Depot's gains for just under 350%. So far in 2017, Illumina stock is up over three times more than Home Depot stock.
I think Illumina will continue to be a winner for three primary reasons. First, nearly two-thirds of the company's total revenue comes from recurring sources. The reality is that Illumina doesn't have to sell too many new systems to grow its revenue and earnings. Second, the company will sell plenty of new systems anyway -- thanks to enormous potential for NovaSeq. Third, Illumina is investing in research and development to stay on top. Success is in this company's DNA.
A retail success story
Tim Green (Best Buy): Home Depot shareholders have enjoyed market-beating returns this year, but Best Buy shareholders have done even better. The consumer electronics retailer's stock has jumped 32% year to date, trouncing Home Depot's less impressive returns.
Best Buy has proven over the past few years that it's capable of growing earnings despite competition from Amazon.com. During the latest quarter, Best Buy's adjusted earnings per share surged 21% year over year, driven by a 5.4% rise in comparable sales. A years-long effort to cut unnecessary costs has made Best Buy nimbler, and a focus on customer service and e-commerce has helped boost sales at a time when many retailers are struggling.
Over the next three years, Best Buy expects to produce slow-but-steady sales growth along with annual EPS growth between 8% and 9%. That may not sound all that impressive, but this is a brick-and-mortar consumer electronics retailer we're talking about. Best Buy plans to drive this growth by intensifying its focus on smart home products and expanding its portfolio of services.
Retail turnarounds are tricky, but Best Buy has done all the right things over the past five years. With the stock trading for about 15 times trailing-12-month earnings, ignoring a cash-rich balance sheet, Best Buy still looks like a pretty good deal.
