It’s no secret that many stocks are down significantly from their highs, but that doesn’t mean that they’re all “cheap.” To find true long-term investing bargains, it isn’t enough to simply focus on stocks that have experienced price drops -- you need to focus on companies with strong growth momentum, leading market positions, and favorable tailwinds.
Two stocks in particular that look extremely attractive right now are MercadoLibre (MELI 3.09%) and Walker & Dunlop (WD 1.18%), which are down by 67% and 42% from their 52-week highs, respectively.
Even high inflation won’t stop this great business
MercadoLibre is a leading e-commerce company in several markets in Central and South America and is often referred to as the “Amazon (AMZN 3.43%) of Latin America.” This certainly makes sense, as MercadoLibre’s marketplace generated $7.7 billion in gross merchandise volume in the first quarter of 2022 alone and has a dominant lead in the key Brazil and Argentina markets.
However, there’s much more to the business. The MercadoPago payment processing division recently surpassed $100 billion in annualized payment volume and has grown by more than 81% over the past year alone. The Mercado Envios logistics platform has gained serious traction, as has the Mercado Credito lending business. So, MercadoLibre is more like the Amazon, the PayPal (PYPL 2.90%), the Shopify (SHOP 1.11%), and maybe even the up-and-coming FedEx (FDX 0.12%) of Latin America -- all in one stock, and at much earlier stages of growth. And despite its excellent growth momentum, shares now trade for about one-third of their peak valuation.
Commercial real estate may slow down, but this is a long-term winner
Walker & Dunlop is a commercial real estate finance company with several different business segments. The core business is loan origination, and Walker & Dunlop is the No. 1 multifamily real estate loan originator in the U.S. In addition, Walker & Dunlop is a major loan servicer, with about $117 billion in commercial mortgage loans in its servicing portfolio. The company also has a property sales business, as well as a rapidly growing asset management and investment banking business.
The company’s growth has certainly been impressive. Revenue has steadily grown from $152 million in 2011 to $1.26 billion last year, and management has set a target of $2 billion by 2025. Walker & Dunlop is a very profitable business, and trades for about 11 times trailing-12-month earnings after the recent stock price decline.
To be fair, there’s legitimate concern that commercial real estate will slow down a bit. Rising interest rates could hurt loan origination volumes in the near term. However, there’s a great need for multifamily housing. Affordable housing (the focus of Walker & Dunlop’s asset management business) has become a real problem in the U.S., and no short-term headwinds are going to change that.
Two great leaders with unstoppable tailwinds
To be perfectly clear, I’m not trying to call a bottom here. If the overall stock market drops further, inflation gets worse, or the economy falls into a deeper recession than experts are forecasting, it’s entirely possible both of these stocks could decline in the near term.
Having said that, times like this are opportunities for patient long-term investors to add shares of market-leading companies to their portfolios. Plus, these both have unstoppable trends (e-commerce adoption, affordable housing) that are going to take decades to play out and aren’t going to be stopped by short-term economic headwinds.
