The market is making a tentative comeback after 2022's losses, energized by confident investors who see the light through the trees in the forest. If you plan well now, you can find amazing stocks with the potential to become multibaggers. However, it requires a bit of faith in the market since the global economy is still experiencing upheaval.
There are some important things to remember along the journey: Every time the market has gone into bear territory or even crashed, it has always rebounded much higher, the stock market has been the greatest wealth-building machine for the average investor, and the goal at the most basic level is to buy low and sell high, which means you can use opportunities when the market is sagging to deploy the formula to your advantage.
The smartest investors know all of this and are strategizing to take advantage of current market conditions. Two stocks to buy to help you achieve your goals are Amazon (AMZN 3.43%) and MercadoLibre (MELI 3.09%).
1. Amazon: On its next great journey
Amazon has been one of the highest-ever gainers on the stock market. However, with stocks that have already achieved unbelievable returns, the question is always whether it's a case of winners keep on winning or a stock that is past its best days. With Amazon, I'm going with the former.
The e-commerce king is definitely feeling strong pressure right now, making it even harder to see all the potential still simmering. But if you buy now, you can grab the opportunity before it explodes. Amazon has always been at the forefront of new technology, and it's never been afraid to take risks. That leads to some failures but more successes. It began acquiring rival and complementary businesses almost from inception, and it has built out the most massive e-commerce network because Jeff Bezos and his team envisioned what retail could look like a step ahead of most others.
2022 wasn't its best year. Sales increased 9% over 2021, but operating income was slashed by almost half, and it posted a net loss of $2.7 billion. Even Amazon Web Services (AWS), usually trustworthy for strong performance, slowed down to a 20% year-over-year increase in the fourth quarter and a slight decline in operating income. Management is guiding for sales to increase by about 6% in the first quarter of 2023. But there's a lot in store for the future.
Management announced a new product last week called Bedrock, which is a generative artificial intelligence product that powers some of AWS' services. It's similar to ChatGPT and is based on Amazon's own data points and machine learning over decades. This could give it a significant edge in the cloud computing race that pits it against other leaders like Microsoft and Alphabet. It also opens up a whole new branch of business that it can dominate.
And that's just one example of how Amazon continues to lead and innovate. Amazon stock is down 32% over the past year, but it's climbing back, and it's already up 22% this year as smart investors buy shares.
2. MercadoLibre: Vast untapped potential
MercadoLibre has been demonstrating for years now why it's a top stock to own for just about any investor. If you haven't been convinced yet, I'll explain why it's so compelling.
First of all, it has shown over and over again that it can operate effectively, capturing market share while turning sales into profits. It has posted several quarters of net losses along the way while investing in its business to become bigger and better, but it has been able to rein in spending when necessary, and that hasn't hurt sales growth. Revenue increased 48% year over year in 2022, and net income increased from $83 million last year to $482 million this year.
It has built a well-developed logistics network with global industry-leading delivery times. 80% of its merchandise is delivered within 48 hours, up from 44% in 2019. Consider its days inventory outstanding (DIO), or how long it takes for goods to get sold, as compared with other retailers. These retailers normally post better DIO numbers but have been crunched by too much inventory due to inflation.
MELI Days Inventory Outstanding (Annual) data by YCharts.
Next, it still has a huge market opportunity. It's still posting strong growth even in its most well-established markets, plus it has newer growth markets. And it has new products that are just taking off, specifically in fintech.
What could be scaring off investors is the hefty price tag. One share costs $1,300 at today's prices, and it's not in fashion to flash a four-digit price tag these days. Many high-priced stocks have split over the past year, and the lower initial investment might make it more palatable for investors to start a position. From a valuation standpoint, MercadoLibre stock isn't cheap, either; shares trade at 55 times forward one-year earnings. But it's a classic case of deserving a premium valuation because of the incredible potential and low risk.
MercadoLibre stock is up 54% this year, and savvy investors are catching it now on the ride up.
