The Nasdaq Composite spent the better part of the last six months in a bear market, and the tech-heavy index currently sits 28% off its high. Losses of that magnitude can be very unsettling, but the best thing any investor can do is maintain a long-term mindset. Eventually, another bull market will come along and the Nasdaq will rebound. But there are plenty of high-quality stocks trading at bargain prices to consider in the meantime.
PayPal (PYPL +1.24%) and MercadoLibre (MELI +3.74%) are two such screaming buys in September. Here's why.
NASDAQ: PYPL
Key Data Points
1. PayPal: The most accepted digital wallet in North America and Europe
PayPal has struggled over the past year, battling headwinds related to the loss of eBay's business and the difficult macroeconomic environment. As result, revenue rose just 9% in the second quarter, and the company posted a GAAP loss of $0.29 per diluted share. But the headwinds related to eBay and high inflation are ultimately temporary, and the long-term investment thesis remains unchanged: Digital payments are becoming more popular, and PayPal is the most accepted digital wallet in North America and Europe.
Moreover, that popularity isn't fading. PayPal was the most downloaded finance app worldwide in the first half of 2022, according to Apptopia. Better yet, studies have shown that PayPal boosts checkout conversion rates by 34% compared to other digital wallets, and that value proposition has helped it strike partnerships with numerous high-profile merchants. Most notably, Pay with Venmo will go live on Amazon later this year.
More broadly, PayPal operates a two-sided payments platform -- offering financial services to both merchants and consumers -- and that gives it an edge over traditional processors. For instance, PayPal can theoretically prevent fraud more effectively because it has access to data on both sides of most transactions. It can also boost sales for merchants by delivering personalized shopping deals to digital wallet users. In fact, PayPal plans to double down on that advantage in the second half of the year by redesigning the shopping hub in its digital wallet.
On that note, PayPal has refocused its growth strategy around three product categories where it has a tremendous competitive edge -- the PayPal and Venmo digital wallets, PayPal Checkout, and Braintree (a more customizable checkout solution for large e-commerce companies) -- and that shift in focus is already paying off. In the second quarter, PayPal continued to take market share across those categories, and CEO Dan Schulman said revenue growth reaccelerated to "north of 14%" in July.
Going forward, PayPal still has plenty of room to grow. It puts its addressable market at $110 trillion, and its business should benefit greatly from the secular shift toward online shopping and digital payments. For instance, the number of digital wallet users will double between 2021 and 2025, according to Juniper Research, and digital wallets will continue to take share at checkout (in both physical and digital settings) during that time period.
Currently, shares trade at an inexpensive 4.1 times sales -- an absolute bargain compared to the three-year average of 24.6 times sales. That's why now is a great time to buy this growth stock.
NASDAQ: MELI
Key Data Points
2. MercadoLibre: The most popular e-commerce marketplace in Latin America
MercadoLibre is a behemoth in Latin America. It runs the largest online marketplace in the region, and it ranks as the market leader in all of the major countries in which it operates. Building on that success, its fintech platform Mercado Pago is the third-most-popular digital wallet in Latin America.
MercadoLibre has reinforced its strong market position with value-added services like logistics, financing, and digital advertising. Those products supercharge the network effects created by its commerce and fintech platforms, and they make both ecosystems more sticky. For instance, its logistics business Mercado Envíos handles nearly 91% of shipping volume, and same-day or next-day delivery accounted for 55% of that volume in the second quarter. Merchants simply couldn't afford to do that on their own.
Financially, MercadoLibre delivered another solid performance in the second quarter, in spite of macroeconomic headwinds. Revenue climbed a respectable 52% year over year to $2.6 billion, but earnings skyrocketed 77% to $2.43 per diluted share. That rapid bottom-line growth was due in part to operational efficiency driven by greater scale in its commerce business, and to exceptionally strong expansion of high-margin services (i.e. lending, credit cards) in its fintech business. But MercadoLibre has only scratched the surface of a massive market opportunity.
For instance, the MercadoLibre marketplace powered $28 billion in sales last year, but e-commerce sales across all relevant countries will reach $260 billion by 2026, according to Statista. And Mercado Pago generated $2.4 billion in revenue last year, but payments revenue in Latin America will total $190 billion by 2025, according to Boston Consulting Group.
MercadoLibre clearly has plenty of room to grow, and with shares trading at 4.8 times sales -- a bargain compared to the five-year average of 13.2 times sales -- now is a great time to buy this stock.
