Even though some stocks have had a bad 2022, it doesn't mean the businesses behind them have. If you completely forget about share prices and examine only improved financials and market-share gains, it's evident that some companies are pretty much unstoppable.
Two I would list are Adobe (ADBE 1.29%) and MercadoLibre (MELI 1.96%). While their stocks are down 40% (Adobe) and 34% (MercadoLibre) year to date, both are valued below their historical valuation levels. Additionally, each has grown revenue this year. This sets the stage for a massive 2023, and I think investors should consider picking up these stocks before 2022 is over.
Adobe
Adobe's digital design suite is the industry standard in multiple disciplines. However, one area it wasn't excelling at was its collaborative features. That's why the company went out and bought Figma for $20 billion in September. While the price tag was expensive (about 50 times Figma's sales), the collaborative technology it acquired will be crucial in the next iteration of Adobe's products.
In the meantime, Adobe's business is doing quite well. Its fourth quarter of fiscal year 2022 (ending Dec. 2) saw revenue growth of 10% year over year to $4.53 billion. This growth was slower than its 12% full-year sales growth. However, the slowdown will likely continue, as management projects 9% revenue growth at the midpoint for FY 2023.
As with many software companies, expense growth outpaced revenue growth. Operating expenses in the fourth quarter were up 17% and caused earnings per share (EPS) to fall from $2.57 to $2.53 this quarter. But Adobe won't repeat this trend in 2023, as management expects EPS to come in at $10.90, up from $10.13 this year.
So why is this stock a buy? It's cheaply valued for its growth.
ADBE Price to Free Cash Flow data by YCharts.
At 22.5 times free cash flow, Adobe is far below where it has ever traded since transitioning to its subscription business model. Next year isn't looking great for software companies in general, yet Adobe is projecting growth around market average. Growing at a time when others can't demonstrates its resiliency.
Additionally, any benefit the Figma acquisition will provide to 2023 results wasn't included in management's projections because it isn't a done deal. The combination of a low valuation, a new growth catalyst, and decent business expansion could make Adobe a top stock to own for 2023.
MercadoLibre
Like Adobe, MercadoLibre is trading at a level (in this case, price to sales) that investors haven't seen for a long time:
MELI PS Ratio data by YCharts.
Despite this massive sell-off, Latin America's e-commerce leader recently grew its total revenue by 61% year over year to $2.7 billion in Q3. MercadoLibre also has a fintech wing, which saw 115% growth to $1.2 billion. E-commerce was no slouch either; it delivered 33% revenue growth, to $1.5 billion.
Additionally, Latin American consumers are still doing great, as MercadoLibre saw a 19% increase in gross merchandise sales on Black Friday. Looking into 2023, Wall Street analysts expect sales to grow 23% year over year and EPS to rise 73% to $14.20. Moving beyond next year, EPS is projected to reach $21.65 in 2024 and $27.04 in 2025.
That's some serious growth expected in the next few years. So why is the stock down so much?
Because MercadoLibre is an e-commerce company, it was sold off with similar businesses, despite having a different user base and a fintech wing. Many investors haven't caught on to this incredibly cheap stock yet, but I don't expect it to take long in 2023.
MercadoLibre is a top stock to own in 2023 and beyond, and now is a good time to use the stock's weakness to establish a position.
