For new investors, finding out where to start can be a difficult process. When investing in individual stocks, the easiest way to start is simply to lay a base layer of core companies. When building this foundation, investing in established companies that still have growth opportunities for the next decade is a wise decision.
These three companies could be perfect core holdings for new investors. Here's why I think MercadoLibre (MELI 0.10%), Shopify (SHOP 4.59%), and PayPal Holdings (PYPL -1.47%) are great growth stocks for new investors to start their portfolios with.
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1. MercadoLibre: A Latin-American cornerstone
When building a diverse portfolio, it's not a bad idea to spread your investments across the world. MercadoLibre can bring some of this international diversification. The company is a three-headed dragon in Latin America, offering logistics, e-commerce, and digital payments services. The company's logistics service -- Mercado Envios -- is a dominant logistics provider across South and Central America. The real kicker with this business segment is its non-MercadoLibre penetration: Envios ships 37% of all items in its areas of operation, led by Mexico, where it ships 65% of all items in the country.
Envios is not even the most impressive part of MercadoLibre. Its e-commerce platform had over $7 billion in gross merchandise volume (GMV) on its platform in its third quarter, and Mercado Pago -- its payment platform -- nearly reached $21 billion. Especially appealing, Pago's off-platform, which is not within the MercadoLibre ecosystem, grew 79% year over year, showing Pago's total dominance and the broad adoption of its payment services.
This dominance outside of its platform is critical because it shows the broad adoption across all of Latin America, especially when this region is one of the fastest-growing regions when it comes to e-commerce and internet penetration. If the region continues to grow as fast as it has over the past decade, its market leadership will pay off immensely. Even though the company's three segments dominate the regions they play in, MercadoLibre only has 78.7 million active users -- representing just 12% of Latin America's total population.
With such strong control of these three segments in one of the fastest-growing regions in the world, it is astonishing to see that MercadoLibre is trading at just 10 times sales. Today's current price is much lower than it historically has been -- it has only neared 10 times sales four other times in the past five years. This company has a strong balance of industry leadership, stability, and potential, making it a great foundational stock for new investors.
2. Shopify: The SMB investment
Shopify, like MercadoLibre, has found dominance in a lucrative market. Shopify provides tools and services for everything from payments to global expansion, making it easy for small and medium-sized businesses (SMBs) to start, run, and grow their businesses.
Unlike competitors like Amazon (AMZN -0.09%), which has been known to copy and promote internally developed products over SMBs on its platform, Shopify is customer-focused. This has attracted over 1.7 million businesses across 175 countries, resulting in over $400 billion in cumulative gross merchandise volume over the past 16 years.
Shopify has gained over 8% market share in U.S. e-commerce sales, falling second only to Amazon, and this strong performance is likely even more prevalent in SMB e-commerce sales. Shopify's tools are based on a subscription model, which bolsters the company's financials. Despite being a $177 billion company, it grew its Q3 revenue by 46% year over year and its net income to $1.1 billion.
Shopify's opportunity is still largely untapped. The company estimates it has a $153 billion addressable market in the SMB space alone, and as the leading SMB player in this space, it has a strong likelihood of capitalizing on it. With $4 billion in trailing 12-month revenue, the company has just scratched the surface of its opportunity, and I am confident it will continue seeing success for the next decade and beyond.
3. PayPal: A stable payments play
If you haven't heard of PayPal, you might have heard about one of its major platforms, Venmo. While PayPal thrives in peer-to-peer payments, that is just the tip of this $226 billion iceberg. It also offers tools for businesses to manage their expenses, a point-of-sale solution, and a wide offering for buying, selling, and gifting cryptocurrency.
With over 416 million active users and nearly 5 billion payment transactions in Q3 alone, PayPal is a dominant fintech platform in the U.S., but it wants to go further than that. It has made recent acquisitions in Japan, and it has launched cryptocurrency offerings in the U.K.
Aside from global expansion, the company's efforts to emerge into the cryptocurrency world are another growth opportunity. With Venmo, users can buy, sell, and even get cash back in crypto with Venmo's credit card. If the cryptocurrency industry continues to grow as fast as it has in the past decade, PayPal could see success. On the other hand, if it disappears, PayPal still has a rock-solid business foundation.
Speaking of rock-solid foundations, the company is extremely robust financially, which indicates strong investment and allocation skills by management. The company generated $2.6 billion in net income and free cash flow combined in Q3. Trading at nine times sales and 46 times earnings, PayPal isn't too expensive when keeping its business strength in mind. This is why I think PayPal could be another great foundational stock for most any new investor's portfolio.
