The stock market is currently clouded by bearish sentiment. With inflation running hot and interest rates rising quickly, many businesses have already seen growth weaken, and the situation could get worse in the near term. That uncertainty has sent the S&P 500 tumbling into a bear market, as the index is currently 21% off its high.
Fortunately, there is some good news. Every past bear market has ended in a new bull market, and the S&P 500 has always recouped its losses. Better yet, the ongoing bear market is a great time to buy stocks, and Wall Street appears to have high conviction in MercadoLibre (MELI 3.09%) and Block (SQ 2.32%). Both stocks have a consensus rating of "buy" among analysts, and the median 12-month price target on MercadoLibre implies 46% upside, while the median price target on Block implies 86% upside.
Here's why investors should buy these growth stocks today.
1. MercadoLibre: A key player in Latin American commerce and digital payments
MercadoLibre operates the most-visited online marketplace in Latin America, and it has cemented that leadership with adjacent offerings like logistics and digital advertising. Those services accelerate the flywheel effect created by its popularity with consumers, bringing more merchants (and inventory) to the marketplace, which naturally boosts buyer engagement, and so on. That virtuous cycle should keep MercadoLibre ahead of its peers for years to come.
Additionally, MercadoLibre's fintech business, Mercado Pago, operates the third-most-popular digital wallet in Latin America. That business is primed to see rapid growth in the coming years, as internet penetration is rising quickly in the region while access to bank accounts and debit cards remains relatively low. Mercado Pago also benefits from a flywheel effect created by adjacent offerings like consumer loans, merchant loans, and asset management.
In short, MercadoLibre taps into two enormous markets -- commerce and digital payments -- and its strong market position in both spaces powered stellar financial results over the past year. Revenue rose 60% to $8.8 billion, and the company posted a generally accepted accounting principles (GAAP) profit of $4.73 per diluted share, up from a loss of $0.05 per diluted share in the prior year.
Going forward, MercadoLibre is well positioned to maintain its lofty growth trajectory. According to eMarketer, retail e-commerce sales in Latin America will climb nearly 19% to $167 billion this year, making it the second-fastest-growing market in the world. And Statista says that figure could reach $260 billion by 2025. That should naturally drive growth in digital payments. In fact, Boston Consulting Group says payments revenue in Latin America could total $190 billion by 2025.
With that in mind, MercadoLibre stock currently trades at 5.1 times sales, an absolute bargain compared to its five-year average of 13.2 times sales. That's why this growth stock is a screaming buy.
2. Block: A disruptive force in commerce and consumer finance
Block breaks its operations into two segments: Square and Cash App. Square comprises an integrated suite of hardware, software, and financial services that help merchants grow their businesses across physical and digital storefronts. That comprehensive offering sets Square apart from traditional payment processors, and it greatly simplifies commerce for merchants.
Similarly, Cash App simplifies financial services for consumers, allowing users to deposit funds, spend money and earn rewards, and invest in stocks and cryptocurrency from a single platform. That broad functionality has led to strong adoption. In the first half of the year, the Cash App was the most downloaded mobile finance app in the U.S., according to Apptopia.
Block's disruptive approach to commerce and consumer finance has translated into strong financial results over the past year, in spite of macroeconomic concerns. Gross profit climbed 37% to $5.1 billion, and free cash flow surged 178% to $563 million. But shareholders have good reason to believe Block can maintain its momentum in the coming years, as management is executing on an ambitious growth strategy.
Specifically, Block plans to supercharge its Square and Cash App ecosystems by integrating both with Afterpay, the buy now, pay later (BNPL) platform it acquired earlier this year. In fact, the company has already made a fair amount of progress. Square merchants in the U.S. can now accept BNPL payments online and in person, and Block recently added a Discover tab to the Cash App, allowing consumers to browse products and make purchases from Afterpay sellers within the digital wallet. Further down the road, as the Cash App evolves into a commerce engine, Block plans to expand its digital advertising services by allowing brands to run targeted campaigns on the Cash App.
Currently, management puts its addressable market at $190 billion in gross profit -- $120 billion from Square and $70 billion from Cash App -- meaning Block has hardly scratched the surface of its potential. To that end, with shares trading at an inexpensive 1.9 times sales, this growth stock has the makings of a rewarding long-term investment.
