We're two months into 2023, and investors are doing their best to interpret the conflicting signals in the market. Fourth-quarter earnings from the S&P 500 were slightly better than expected, according to Factset, and the unemployment rate remains low, showing the economy has been resilient in the face of rising interest rates.
However, investors are still paying close attention to the Federal Reserve, and central bankers have indicated they intend to keep raising interest rates. Meanwhile, a number of economists and chief executive officers now expect a recession to hit in the second half of the year.
If you're looking for stocks to buy in today's uncertain environment, it makes sense to pick companies that have proven themselves over the last year in a challenging macro environment. Keep reading to see three of my favorite stocks that have done just that.
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1. MercadoLibre
Although most e-commerce companies have seen revenue growth wither after a boom during the pandemic, MercadoLibre (MELI -1.69%) has continued to deliver strong results. The Latin American e-commerce company reported 61% revenue growth to $2.7 billion in the third quarter, driven by solid results in both e-commerce and its digital payments business, MercadoPago.
MercadoLibre also posted a record operating margin of 11% in the quarter, driven by the emergence of high-margin businesses like advertising and lending, showing the company is leveraging its e-commerce platform into new revenue streams. Advertising, in particular, seems to have a lot of potential, as MercadoLibre benefits from its position at the bottom of the funnel as consumers come to its site looking to purchase.
The stock might be expensive according to traditional metrics, but there's still a lot of room for growth as the Latin American middle class expands. The company's management team has proven itself with an interconnected web of businesses, like logistics and payments, and strong growth in profitability.
As its competitive advantages multiply, the stock should keep moving higher.
2. Airbnb
The travel sector has remained resilient despite the macroeconomic challenges facing much of the economy, and one of the beneficiaries has been Airbnb (ABNB -1.17%).
The home-sharing leader just reported 24% revenue growth, or 31% in constant currency, to $1.9 billion. Its profitability has also surged over the past year as the business continues to scale up. The company has benefited from higher interest rates because it collects interest on funds it holds between bookings and stays.
The stock is up 44% year to date after falling roughly 50% in 2022, but it still looks well-priced, especially on a free-cash-flow basis. The company finished last year with $3.4 billion in free cash flow on $8.4 billion in revenue. And with a market cap of $80 billion, the stock trades at less than 24 times free cash flow, making it very affordable for a stock with its growth potential.
Airbnb's growth rate is likely to moderate in 2023 as the recovery in the travel sector fades. However, the company still expects solid growth this year, forecasting 16% to 21% revenue growth in the first quarter, or 18% to 23% in constant currency.
Profit margins should continue to widen over the long term as management reaffirmed its commitment to running a lean organization. And the company's competitive advantages with its brand name and network effects should help protect those margins.
At its current price, Airbnb still has plenty of upside potential.
3. Williams-Sonoma
Like the other stocks on the list, high-end home furnishings retailer Williams-Sonoma (WSM 1.65%)has bucked the trend in its industry. While other home goods companies have seen growth slow after a strong performance during the pandemic, Williams-Sonoma has continued to deliver impressive numbers.
In the third quarter, comparable sales rose 8%, up 25% on a two-year basis and nearly 50% over the past three years. Meanwhile, the company is highly profitable, with an operating margin of 15.5%.
Williams-Sonoma has evolved with the changing retail environment by rationalizing its store footprint and getting most of its sales, roughly 70%, from the e-commerce channel. The company is also building out new revenue streams with a third-party marketplace and business-to-business sales, tapping into the large home furnishings market beyond the typical residential consumer.
However, despite its recent performance and promising growth opportunities, Williams-Sonoma is dirt cheap at a price-to-earnings ratio of less than 8. At that valuation, investors are pricing in almost no growth in the company, which seems like a mistake, given its brand strength, recent performance, and growth strategy. From that perspective, Williams-Sonoma looks like a good bet to outperform this year.
