Stay invested. That is the mantra that has guided so many of the great investors of our time, and one that has been minting millionaires for hundreds of years.
In the spirit of staying invested, we asked several Motley Fool contributors to pitch us their best stocks to buy in March. Here's why they picked Amplitude (AMPL -0.08%), MercadoLibre (MELI -1.26%), GrafTech International (EAF 1.12%), Bank of N.T. Butterfield (NTB), and Roku (ROKU -3.29%)
Jeremy Bowman (Amplitude): The sell-off in high-growth tech stocks has hit dozens of big names, but few have fallen as far and as fast as Amplitude. The recent IPO is down 75% from its all-time-high in November, and plunged 60% after its recent earnings report.
A sudden decline alone isn't a reason to buy a stock, but there are a number of reasons to like Amplitude, especially at the current price.
The company is a leader in digital optimization software, a newer software-as-a-service sector that is just beginning to attract non-tech companies like banks and automakers. Amplitude's analytics tools help companies gauge the performance of their digital products so they can figure out what's working and make improvements. Amplitude helped Peloton discover that social connection was the key to subscriber satisfaction, and guided Burger King's "Whopper Detour" campaign, which offered a Whopper for a penny to any customer near a McDonald's.
With its focus on first-party data, Amplitude is also poised to benefit from the upheaval in third-party marketing data as Apple has blocked ad-targeting tools favored by Meta Platforms and other social media companies, and Alphabet's Google said it would soon ban third-party cookies from Chrome. Losing those targeting tools will incentivize companies to look to their own product data to optimize their business.
Amplitude's post-earnings crash came about because it dialed back 2022 revenue growth guidance from at least 40% to 35%-40%. But that guidance could prove to be conservative and even if it isn't, high 30s revenue growth is nothing to sneer it, especially in an emerging market. At a price-to-sales ratio of 10, Amplitude has plenty of upside potential.
Poised for a strong rebound
Keith Speights (MercadoLibre): Few stocks have such unambiguous and massive growth prospects as MercadoLibre. The company ranks as a leader in two especially fast-growing markets in Latin America: e-commerce and fintech.
Growth hasn't been a problem for MercadoLibre whatsoever. The company reported net revenue of $2.1 billion in its latest quarter, a strong 73.9% year-over-year jump on a constant-currency basis. This performance was especially impressive considering the tough comparisons with a pandemic-related surge in sales in the prior-year period.
But MercadoLibre is only scratching the surface of its opportunity. Morgan Stanley projects that the e-commerce penetration rate in Latin America could increase from 9% in 2021 to 16% in 2025. As the market leader, MercadoLibre is well positioned to benefit tremendously from this growth.
The company is already seeing this trend in action. MercadoLibre CFO Pedro Arnt said on the Q4 conference call, "Even with the reopening of physical stores, customers in Latin America have embraced shopping online, paving the way for further long-term growth in the region."
MercadoLibre also has great growth potential with its fintech business, which already has 34.5 million active users. The company's launches of new products are increasing the engagement levels of these users.
Despite its excellent prospects, MercadoLibre's shares are down around 40% from the peak level in September 2021. I think this stock is poised for a strong rebound and should be a big winner for investors over the long term.
A fire hose of cash about to get pointed at investors
Tyler Crowe (GrafTech International): The manufacturing of steelmaking equipment, specifically graphite electrodes for electric arc steel furnaces, is a rather dull-sounding business. Fortunately, GrafTech International makes up for it with an extremely high-margin business and an emerging growth option: graphite anodes for lithium-ion batteries. Demand for graphite electrodes overall is expected to grow significantly over the next several years, and GrafTech doesn't need to plow a lot of capital into the business to capture that demand -- it owns about 25% of global graphite electrode manufacturing capacity outside China.
In steelmaking, these electrodes are a consumable product, which means that any steelmaker using electric arc furnaces needs to consistently buy GrafTech's products. This specific method of steelmaking has been taking market share for decades and now represents 48% of global steelmaking capacity outside of China. Lithium-ion anode production could be a boon for the company, though. GrafTech estimates that graphite anode demand for batteries is expected to grow 32% annually between now and 2030.
The most appealing part for investors, though, is GrafTech's profitability. Its average profit margin over the past three years is 25%, and it has converted 30% of its revenue to free cash flow over that same time period. The one knock against it was it had a high debt load when Brookfield Business Partners IPO'd the business in 2018, but it has been using all that free cash flow to pay down debt. Management has stated once it hits its target debt levels, it expects to return capital to shareholders.
It may not qualify as a fast-growing business, but GrafTech is an incredibly profitable business that will likely continue to throw off cash to investors for decades. Today, it is only valued at a price-to-earnings ratio of seven. That is an absurdly cheap price to pay for such a quality business.
This under-the-radar bank can quietly outperform
Jason Hall (Bank of N.T. Butterfield): Not anything close to a household name, Butterfield is a full-service bank operating in Bermuda, and the Cayman and Channel Islands. It focuses on high-quality, high-touch banking and financial services, and caters more to the jet set than Main Street.
Over the past few years, management has made efforts to help grow and diversify its business, and those results are starting to bear fruit. In 2021, non-interest income, which management says it has been working to grow, increased 7%, helping to offset a 6% decline in net interest income. As a result, net income was up 11% last year.
That may seem like a small increase, but it's important because it matches up with what management has been telling investors: It would take some time for some of its acquisitions to be fully integrated and show up on the bottom line.
Looking ahead, I think Butterfield's growth could accelerate. Rising interest rates should boost its profits, while its focus on wealthy clients will help it through economic uncertainty. It's a great place to be in, if you're a banker.
Along the way, investors can earn a generous 4.7% dividend yield at recent prices, and anticipate a return to dividend growth with earnings now rising again. With shares still 30% below the all-time high, March is a great time to buy one of my favorite bank stocks for dividends and growth.
Down, but not out
Brian Feroldi (Roku): High-growth stocks have been under tremendous selling pressure over the last year. Consider what's happened to Roku. Shares of the steaming and media giant have fallen more than 70% over the last year and dropped more than 22% in a single day in February.
What can explain the massive decline? First, there's no doubt that investors bid up the stock to an unsustainably high valuation during the COVID-19 stock boom. Second, investors were disappointed when the company reported its fourth-quarter results. Management had guided for total revenue of about $893 million during the quarter but only delivered $865 million. To make matters worse, management guided for 25% revenue growth in the first quarter of 2021, which is well below the 30% growth that Wall Street was looking for.
So is the growth story over? I don't believe so. Management noted that new TV sales are down right now because of supply chain issues. That's a big headwind for Roku since user growth is linked to new TV sales. What's more, advertising spending in the auto sector and consumer packaged goods sector is also under pressure because of the supply chain disruptions.
Management believes that these issues are just temporary headwinds and that high growth will resume as these challenges ease. More importantly, management noted there is still huge room for growth both domestically and abroad. I happen to agree.
While shares still don't look classically cheap, I think that Roku is exceptionally well positioned to grow rapidly as consumers continue to ditch linear TV in favor of streaming. Buying a few shares while they are on sale is likely to be a profit-friendly move.