The year is drawing to a close, and it's been a rough one for many investors. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite are all likely to end 2022 in the red.
However, smart investors know that downtrends present opportunities for those willing to play the long game. There are always great stocks out there just waiting to be bought. It's simply a matter of finding them.
So, let's have a look at the stocks that three Fool.com contributors think are no-brainer buys before the end of 2022: Microsoft (MSFT 0.46%), MercadoLibre (MELI 0.87%), and PayPal Holdings (PYPL 1.41%).
Image source: Getty Images.
This Latin American e-commerce giant defines antifragility
Will Healy (MercadoLibre): MercadoLibre could prosper in 2023 on its antifragility. Antifragile companies benefit from challenges and stress, an advantage that serves them amid economic and political uncertainty.
One example of MercadoLibre's antifragility is how it makes e-commerce possible in its region. To succeed, MercadoLibre has to reach customers who do not hold bank accounts or credit cards.
It addressed this obstacle by creating Mercado Pago. This allows cash-based customers to conduct transactions in digital currency. The company later expanded Mercado Pago to businesses not buying from MercadoLibre. It has also developed a following by paying interest to some account holders, a hedge against high inflation.
The total payment volume for Mercado Pago grew 76% in the third quarter of 2022. Such success likely explains why many investors see Mercado Pago as the real reason behind MercadoLibre stock's wild success.
Another challenge in Latin America is fast delivery. MercadoLibre addressed this issue by creating Mercado Envios. This business can store, package, and ship goods for clients. It can often ship such goods in one or two days, a service that had not been widely available in that region before Mercado Envios.
Taking on such challenges continues to result in rapid growth. MercadoLibre generated $7.5 billion in revenue in the first nine months of 2022. That is an increase of 53% compared with the same period in 2021. Also, net income for the time frame came in at $317 million, rising 146%. Slower growth in the cost of revenue and modest growth in income tax expenses led to a significant increase in its profits.
Also, while MercadoLibre stock has fallen 25% over the last year, its price-to-sales ratio has dropped to less than 5, a range last seen in 2009. Over time, that valuation and its profit growth should boost MercadoLibre's antifragility as well as its stock price.
PayPal isn't getting the respect it deserves
Justin Pope (PayPal Holdings): The financial sector is a multitrillion-dollar industry, which gives a sprawling fintech conglomerate like PayPal Holdings a lot of room to operate. The company has fingerprints all over the sector; it offers digital banking, peer-to-peer payments, money transfers, and more. PayPal has 432 million active accounts today, processing $1.25 trillion in total payment volume last year.
In this bear market, Wall Street has shunned the stock; the shares have fallen 74% from their high due to worries over competition from companies like Block (and its competing payment platform CashApp), losing its place as eBay's primary payment processor, and single-digit account growth. But as you can see below, PayPal is still putting up huge financial results, including getting $5.6 billion in free cash flow from its $27 billion in annual revenue, a robust 20% conversion rate.
PYPL Revenue (TTM) data by YCharts
Sure, PayPal might not be the fastest-growing fintech stock today, but the outlook is anything but grim. Analyst estimates call for earnings-per-share (EPS) growth averaging 15% over the next three to five years. That's faster than what the S&P 500 historically averages; yet, PayPal's stock trades at a lower valuation. Its forward price-to-earnings (P/E) ratio of 19 is less than the S&P 500's multiple of 21.
That doesn't seem to make much sense, given PayPal's significant profitability and growth outlook. But the market doesn't always make sense in the short term, and things can get weird in a turbulent market, as we've seen throughout this year. That could make PayPal a wise choice for investors looking for year-end opportunities.
Microsoft is a coiled spring ready to pop back in 2023
Jake Lerch (Microsoft): When I think of no-brainer stocks for 2023, Microsoft stands out. The software giant has shed a whopping 24% of its value so far this year. That amounts to a staggering $600 billion loss of market capitalization.
And yet, when you examine Microsoft's fundamentals, the stock's price action looks like an overreaction. The company has met or beat earnings estimates in three of its last four quarters. Revenue over the last 12 months stands at $203 billion, with earnings before interest, taxes, depreciation, and amortization (EBITDA) at a staggering $99 billion. Both figures are all-time records.
Sure, revenue growth has cooled from its pandemic-induced-high of over 20% to around 11%, but that should be seen as what it is: a reversion to the long-term average, not a collapse.
MSFT Revenue (Quarterly YoY Growth) data by YCharts
What's more, analysts see blue skies on the horizon. Wall Street expects Microsoft's sales to increase to $212 billion in 2023 and $240 billion in 2024. Earnings are expected to increase to $9.55 a share in 2023 and $11.18 in 2024.
Applying a price-to-earnings multiple of 29 (the company's 10-year average P/E) to Microsoft's expected 2023 earnings would result in a $277 stock price. However, the shares are trading for around $250 as of this writing.
That looks like a bargain to me. And that's why Microsoft is my pick as 2023's no-brainer stock to buy now.
