Statistically, April is the best month for stocks, averaging a 1.5% gain from 1980 to 2018. However, I'm less interested in how a stock performs over a month or a single year. Businesses don't decide to maximize sales or profits for an individual month to watch their long-term prospects crumble.
But even taking a long-term view, there are still good deals to be had right now, and two stocks I'm planning on buying in April are Cloudflare (NET 2.14%) and MercadoLibre (MELI -1.26%). Their share prices are down more than 40% from their all-time highs despite having attractive business prospects.
As more of the global population gains access to the internet, businesses and other entities must launch websites to serve their customer base, or the competition will succeed. However, Cloudflare can improve speed and security even for geographies with well-developed internet infrastructure.
The company allows anyone to host a website through its cloud, hybrid, or on-premise offering. Because it takes care of the technology, customers can have top-notch website speed. Additionally, Cloudflare provides cybersecurity for the customers on its servers.
Currently, Cloudflare has data centers in more than 250 cities globally, each of which stores code for customers on its cloud website hosting service. Anyone accessing a website is immediately routed to the nearest data center, speeding up the customer experience. With plans to expand into more than 1,000 locations, Cloudflare is just getting started with its global network.
From the business side, Cloudflare had a successful 2021. Revenue grew 52% during the year to $656 million, and its large customer cohort -- those with more than $100,000 of annualized revenue -- increased 71% to 1,416. Although the company has more than 140,000 paying customers, the 1,416 largest customers account for 54% of total revenue. Large customer growth will be a crucial metric to watch when Cloudflare reports earnings on May 5, as the company must continue getting existing customers to spend more if it is to grow into its valuation.
Because from a valuation standpoint, Cloudflare is one of the more expensive stocks on the market, trading around 49 times sales. This high multiple presents a considerable investment risk, as even great investments can be trouble if bought for the wrong price. However, as its market opportunity grows to $100 billion by 2024, Cloudflare's growth potential is too significant to ignore by writing off its stock as "overvalued."
If Cloudflare can continue driving large customer growth and become consistently profitable, something management is projecting will happen this year, then it should prove to be an excellent long-term investment.
Latin America has nearly twice the population of the U.S., and just as e-commerce has transformed how U.S. consumers shop, Latin America is experiencing the same revolution. MercadoLibre is powering many of the changes in that region through its various businesses.
To buy items online requires something other than cash -- a problem Mercado Pago solves. Its payment app allows users to invest, send money to friends, pay for items online and in-store, as well as get access to a credit card from its Mercado Credito division.
The Mercado Libre marketplace allows sellers to easily access this populous region, regardless of whether the business is based in Latin America. MercadoLibre has the top e-commerce platform in this region with more than 65 million buyers and 12 million sellers.
The company created its Mercado Envios logistics division to transport packages from warehouses to customers. In the fourth quarter of 2021, it handled some portion of 89% of packages sold on its Mercado Libre marketplace. Even more impressive is that 59% of those packages were delivered on the same day or the next day.
Because e-commerce saw a massive boom during the pandemic, most companies had difficult 2021 financial comparisons. In Q4 2020, MercadoLibre's revenue grew 149% year over year, but Q4 2021 saw 74% year-over-year growth even with this tough comparison. When its two main divisions -- commerce and fintech -- are analyzed, recent results reveal strength across the board.
|Division||Q4 2021 Revenue||YOY Growth||% of Total Revenue|
Unlike Cloudflare, MercadoLibre stock trades at a more reasonable eight times sales. The company has only seen its valuation fall this low a handful of times in the last 15 years. For as much growth as MercadoLibre can generate, this stock is a rare case of low risk and high reward.
I plan on adding to my positions in these world-changing companies in April. Growth investors with a long time horizon should consider doing so as well.