Basketball fans are familiar with the expression, "It's a game of runs." In this way, the stock market is a bit like basketball since bear markets, which can be considered southbound runs, are always followed by bull runs. So after last year's horror show, investors can rest assured that they will experience better days soon enough.
And to profit from the coming bull market, it helps to take inspiration from one of the more famous names in the investing world: Cathie Wood. The CEO of the investment firm Ark Invest and her team often make excellent picks to add to their actively managed exchange-traded funds (ETFs).
Let's examine two excellent Cathie Wood stocks that can help investors ride the coming bull market: Block (SQ -2.28%) and MercadoLibre (MELI -1.01%).
1. Block
Formerly known as Square, Block is a fintech specialist looking to profit from this industry's lucrative opportunity. The company's massive ecosystem includes its peer-to-peer payment app, Cash App, which had 49 million monthly active users as of September, representing a 20% year-over-year increase.
In the third quarter of 2022, Block processed $54.4 billion in gross payment volume (GPV) across its Cash App and Square (which targets business) ecosystems, up nearly 20% compared to the comparable period of the previous fiscal year. These metrics grew even amid an economic slowdown, an impressive result for Block.
One reason behind the company's continued success is that it keeps adding new services. Consider the company's integration of Afterpay, a buy now, pay later (BNPL) specialist, which it acquired in early 2022 for $13.9 billion. The BNPL option allows businesses on Square to attract customers looking for flexible payment options, while Cash App's users also seeking flexibility can sift through Afterpay merchants to purchase various items.
Expanding its clients' set of choices will only make Block more popular to current users as well as more attractive to those who have yet to join in. The result will be a widening ecosystem, higher GPV, higher revenue, and higher gross profits. That's what Block has consistently done over the years. And while it has yet to achieve consistent net earnings, it sees a $190 billion gross profit opportunity ahead.
The company's gross profit of $1.57 billion in the third quarter, which increased 38% year over year, is less than 1% of that total. Block should succeed in becoming consistently profitable as the adoption of the kinds of services it offers continues, leading to strong financial results and stock market performances for the company over the long run.
2. MercadoLibre
MercadoLibre leads the e-commerce industry in Latin America with a presence in 18 countries in the region. The company also has a presence in the fintech industry through its online payment platform, Mercado Pago, which is the largest of its kind in Latin America. MercadoLibre's presence in these two industries is one of the things that makes the company attractive.
E-commerce has grown rapidly in the past decade, and that should continue, benefiting those players who can stay on top of the industry. That should be true as well for fintech, which will only grow in prominence as people increasingly seek versatile payment options to meet the demands of a more digital world.
Further, it is difficult to imagine MercadoLibre losing its grip in Latin America anytime soon. The company's platform benefits from a competitive edge from multiple sources. Here is just one example. MercadoLibre's popularity in the region attracts an increasing number of merchants looking for customers.
The rising number of products and services these merchants offer appeal to shoppers, making the platform more valuable as more consumers use it -- a dynamic known as the network effect. MercadoLibre hasn't escaped the recent downturn unscathed, partly due to declining revenue growth rates. The company's third-quarter revenue increased by nearly 45% year over year to $2.7 billion.
MELI Revenue (Quarterly YoY Growth) data by YCharts
However, MercadoLibre's top line jumped by 60.6% in constant currency. This metric should improve as currency exchange rates stabilize. Improving economic conditions, whenever they arrive, should help MercadoLibre's business. It would lead to more spending on goods and services, higher revenue, and higher profit.
And even more important, MercadoLibre is in an ideal position to ride both the e-commerce and fintech markets for years, including during the next bull market and beyond. That's why investors should buy this growth stock while it remains down by 32% in the past year.
