The stocks that typically deliver the highest returns over time are ones where the underlying businesses are reporting blazing revenue growth with lots of opportunities to expand. The best companies to invest in will post high rates of revenue growth even during a bear market like we're seeing now, with the Nasdaq Composite down nearly 30% from its previous high.
A small investment of $500 can multiply into thousands with the right growth stocks. Here are two promising ideas to get you started.
1. MercadoLibre
One area of the economy that will continue to produce winning stocks over the long term is e-commerce. MercadoLibre (MELI -1.98%) is the largest online commerce and payments provider in Latin America -- one of the fastest-growing e-commerce markets in the world. The company has consistently grown revenue and total payments volume at high rates over the last several years, turning a $500 investment in 2012 into $12,000 at the stock's high in 2021.
MercadoLibre is the Brazilian counterpart to eBay and PayPal Holdings in the U.S. It offers an online marketplace, logistics solutions, online and in-store mobile payments solutions, and consumer and merchant loans. It's the total e-commerce package for a region with over 650 million people.
The stock has fallen 59% from its all-time high of $2,020 last year, but the stock is now cheaper than it's been in years. Using trailing-12-month revenue, MercadoLibre's price-to-sales ratio usually hovers around 10 to 12, but the stock currently trades at 5.2 times trailing sales.
MercadoLibre's valuation is cheap, with revenue growth clocking in at 78% in 2021. Even better is that MercadoLibre is seeing margins rise, which means profits are growing faster than revenue. The company reported earnings per share of $1.30 in the first quarter, compared to a loss of $0.68 in the year-ago quarter.
MELI Revenue (TTM) data by YCharts
Trailing-12-month operating margin stood at 6% through the first quarter and should continue to climb toward the teens, which is the level of margin MercadoLibre achieved before its recent investment cycle in marketing and technology to grow the business.
In its last earnings report, management noted that the business is emerging from the pandemic stronger than before. The stock is a bargain in light of strong top- and bottom-line growth, ultimately driven by MercadoLibre's position as the top online payments company in Latin America.
2. Salesforce
Salesforce (CRM -1.59%) is another top growth stock that has delivered monster returns for years but still has a lot of opportunities ahead. Salesforce is the leader in customer relationship management (CRM) software. It offers a series of apps that provide companies better tools to manage sales, marketing, communication between employees, customer service, and more. These applications are accessible through the cloud on a subscription basis.
Through 2020, Salesforce led the CRM market with an estimated 32% market share. That was more than double the market share of its next closest competitors Adobe and Oracle. Salesforce has continued to expand its offerings from consumer-related companies to other industries, and it's also continuing to innovate for its clients through key acquisitions. Last year it acquired Slack for $27 billion, which provides a channel-based messaging platform for employees.
Another reason to like Salesforce is its culture. Salesforce was recognized as one of the top 100 places to work by Fortune in 2021. This has clearly been a key ingredient in the company's consistent operating performance over the last 20 years. Last year, Salesforce continued to hold its market share with revenue growing 25%. Management is calling for another year of 20% revenue growth in fiscal 2023 ending in January.
The market sell-off has taken the stock down to a historically low valuation of 6.8 times trailing revenue. This is at the low end of the historic trading range for Salesforce. Considering management's guidance and the records achieved in revenue and margins last year, the stock is a steal at these levels.
Keys to picking great stocks
You might have noticed a theme here. MercadoLibre and Salesforce are leaders in their respective markets and demonstrate long track records of strong growth and market-beating returns for shareholders.
Building wealth through stocks is simple. When a top growth stock is down with the broader market, and the underlying business continues to post high rates of revenue growth, it's time to buy shares hand over fist.
