We are in the middle of one of the most difficult periods in recent history. The last time a pandemic of this magnitude hit was 1918.
Because of COVID-19 , some are sick and dying, others are out of work, and the market is down drastically.
Here's the position investors like us find ourselves in:
- We all like getting a deal on stocks.
- This seems like a high price to pay for those deals.
Both things can be true. What's important is that we make responsible fiscal decisions. In that vein, if you have an extra $1,000 in your retirement accounts -- and you don't need that money in the next three years -- there's one stock I think deserves extra attention: Mercadolibre (NASDAQ:MELI).
The highest scorer using a winning framework
I've been investing for over a decade. During that time, I've developed what I call "The Antifragile Framework" for vetting stocks. It is inspired by the writings of former trader, professor of risk management, and best-selling author Nassim Nicholas Taleb.
And the framework has produced stellar results: My investments have more than tripled the market's over the past 10 years. Of all the stocks I have run through the framework, none has performed as well as Mercadolibre -- and with the stock down nearly 40% from its all-time highs, I think it deserves an extra look.
A mission-driven company with a wide moat and lots of optionality
That headline is a lot to unpack, so let's start at the beginning. For those unfamiliar, Mercadolibre is a Latin America-based company whose mission is "to democratize commerce and financial services."
For much of the company's history, it did this by hosting a marketplace website similar to eBay. That core business still exists today and is protected by two moats:
- The network effect: As more people visit the website (there are 321 million registered users), sellers are incentivized to list their goods, which draws in even more users.
- Low-cost production: In response to potential competition from Amazon and/or Walmart, Mercadolibre has invested heavily in fulfillment and delivery capabilities. That allows it to deliver packages for a lower internal cost than either Amazon or Walmart can match (so far) in the countries Mercadolibre serves.
But it doesn't stop with e-commerce. Over a decade ago, the company also created a payment solution to help Latin Americans pay for stuff on Mercadolibre's website: Mercado Pago.
That solution has taken on a life of its own. While it is still used to buy things on Mercadolibre's platform (read: its e-commerce site), it is being used even more for everyday purchases.
Growth like that is unheard of. And while the business might be hurt in the short term by lower spending in Latin America, there's little doubt that touchless payments (read: not using paper currency) will be more important in a post-COVID-19 world.
Next, the company scores well because its balance sheet provides the kind of flexibility to not only help it survive in a downturn but thrive. Consider:
- The company has a net cash position of $2.4 billion.
- Over the past twelve months, despite heavy investments in fulfillment and Mercado Pago, it has brought in $314 million in free cash flow.
Here's what that means: Mercadolibre has more than enough cash to survive a business downturn. Upstarts that are moving into its turf with fewer resources won't be so lucky. And its highly unlikely Amazon or Walmart are going to aggressively move into Latin America during this time frame.
Put it all together and I believe that when an economic recovery sets in, Mercadolibre will be positioned to capture even more market share over the decade to come.
Skin in the game
I love investing in founder-led companies. Often times, founders of publicly traded companies have more than enough money to walk away. But when they choose to stay, it's for existential reasons, whether based on the company's mission or simply personal ego.
I'm not too concerned either way as the outcome is the same: A desire to build something of lasting value.
Marcos Galperin founded Mercadolibre over 20 years ago and is still at the helm as CEO. As of the company's last proxy, he also owned over 8% of shares outstanding. That means if Galperin makes poor decisions, he'll feel the pain of those decisions right alongside us shareholders.
A final word on Mercadolibre
Right now, shares of Mercadolibre trade for about $500 apiece. Don't let the high price tag stop you from considering shares. Remember, price isn't nearly as important as percentages. Whether you invest all your money in a $5 stock or a $500 stock, you'll gain just as much if both go up 10%.
Two shares of Mercadolibre may not seem like much, but 10 years from now, I believe you could look back and realize what an incredible deal you got. I should know, it's in my top-five holdings, and the only reason I'm not buying more right now is because it's such a large part of my portfolio.
If you're looking for a place to park your extra $1,000, Mercadolibre is an excellent choice.