It might seem risky to buy tech stocks as the Nasdaq hovers near its all-time high. As the old Wall Street saying goes, "bulls make money, bears make money, but pigs get slaughtered."
However, investors who decide to avoid all tech stocks until the market cools off could be ignoring some great secular and cyclical growth stories. Here are three stocks that fit that description: Roku (ROKU 0.81%), MercadoLibre (MELI -0.86%), and Infinera (INFN -4.85%).
Roku is one of the world's leading producers of streaming video devices. But it actually generates most of its revenues and gross profits from its software platform, which makes money from integrated ads and content partnerships.
The expansion of this software ecosystem -- which runs across its own devices, other set-top boxes, and smart TVs -- reduces Roku's dependence on its lower-margin hardware business, enables it to sell cheaper devices to stay competitive, and consistently boosts its gross margins.
Roku ended last quarter with 53.6 million active accounts, compared to just 13.4 million active accounts at the end of 2016. It's locking in all those users by expanding the Roku Channel, its ad-supported streaming video platform that offers free shows, movies, and live-TV channels.
Roku is a great play on the streaming video market, as well as a long-term bet on the death of traditional TV. That secular shift could tether even more advertisers and content partners to the company.
Roku's revenue rose 58% last year as people bought more streaming devices and watched more videos throughout the pandemic. But unlike other "pandemic stocks," Roku isn't expected to experience a major slowdown -- analysts still anticipate 55% revenue growth this year.
Roku's profits remain slim and its stock is undeniably expensive at 20 times this-year's sales. But it's gradually evolving into a next-gen media platform, especially after its takeover of Quibi's original content, and could maintain impressive growth rates for years to come.
MercadoLibre is Latin America's largest e-commerce company. It operates across 18 countries, and generates most of its revenue in Brazil, Argentina, and Mexico. It served nearly 70 million unique active users last quarter and processes their payments through its Mercado Pago platform.
MercadoLibre's revenue surged 73% in 2020 as the pandemic drove more shoppers online, while its gross merchandise volume (GMV) -- the value of all goods sold across its marketplaces -- increased 50% to $20.9 billion.
Analysts expect its revenue to rise 58% to $6.3 billion this year, even as it faces tougher post-pandemic comparisons. It can maintain that momentum because Latin America remains an underpenetrated e-commerce market.
Brazil, the region's largest economy, has an e-commerce penetration rate of just 12.5%, according to Fidelity International, BTG Pactual Research, and Euromonitor. By comparison, China and the U.S. have e-commerce penetration rates of 27.3% and 20.3%, respectively.
Therefore, MercadoLibre could still have plenty of room to grow over the next few years. It's not a perfect company -- it isn't consistently profitable, it faces smaller challengers, and the stock isn't cheap at 12 times this year's sales -- but it's still more affordable than many of the market's frothier tech stocks.
MercadoLibre's stock has slipped 7% this year, but the recent resurgence in COVID-19 cases could make it a defensive pandemic play again. It could also be an attractive alternative to the high-growth Chinese e-commerce stocks that are being squeezed by Chinese and U.S. regulators.
Infinera's optical devices enable carriers to expand the capacity of their existing networks without laying down additional fiber. Its growth rates might initially seem unimpressive -- revenue rose 4% to $1.36 billion last year and it posted a net loss. But Infinera is a cyclical stock.
Most fiber networks currently transfer data at 100G to 200G speeds across long distances and 400G to 600G speeds across shorter distances. Many carriers have gradually started to test out 800G connections over the past year, and only three companies -- Infinera, Ciena, and Huawei -- offer those 800G upgrades.
Trade blacklists and sanctions have cut Huawei off from many carriers outside of China, so Infinera and Ciena are the only viable choices for many carriers. Most carriers will likely split their 800G contracts between the two companies to avoid putting all their eggs in a single basket.
Infinera recently provided a rosy view of the future at its latest investor day. It told investors it expected to outpace the growth of the broader optical market and will grow its revenues at a compound annual growth rate (CAGR) of 8%-12% between 2020 and 2025, expand its gross margins, and launch new optical products.
Analysts expect Infinera's revenue to rise 5% this year and 9% next year as its profitability improves. Yet its stock trades at just 1.3 times this year's sales -- so it could generate big gains as its 800G orders roll in over the next few years.