I'll say it: A decade is a long time. And it's sure to be filled with the unexpected. Professional analysts typically attempt forecasting the next three months, and even those short-term predictions often have the precision of a coin flip. And that's not to criticize analysts -- perfect foresight is obviously nonexistent. How much harder, then, is it to pick stocks for a decade or more?
Counter-intuitively, I don't believe long-term investors need to fret. After all, it's easier to determine where the world is generally headed without needing to be precise on the details.
I believe this could apply to the e-commerce space. I'm not sure how big e-commerce will be in 10 years. But I adamantly believe consumers will continue adopting it more in years to come, making it a great space to invest in.
Moreover, some companies are better positioned to outcompete rivals. And I believe that applies to three e-commerce companies in particular: MercadoLibre (MELI 12.45%), Amazon (AMZN +0.49%), and Chewy (CHWY 3.34%). Here's why.
1. MercadoLibre
MercadoLibre has been called the Amazon of Latin America. But with shipping services and financial technology (fintech) products, it's much more than just an e-commerce website.
NASDAQ: MELI
Key Data Points
MercadoLibre ended 2022 with more unique buyers on its e-commerce platform than ever, at 46 million. This large level of adoption has helped MercadoLibre earn the distinction of the most popular online marketplace in Latin America, according to Statista.
Can MercadoLibre stay atop the pack? Well, it certainly has the infrastructure in place to fend off competition. The company has warehouses and fulfillment centers as well as networks of third-party shippers and last-mile delivery services. Because its services are so comprehensive, MercadoLibre can now deliver 76% of orders within two days -- a number that's already hard to beat, and it's still improving.
Up-to-date numbers are hard to find. But Latin America experienced the hottest growth in the world for e-commerce in 2020, according to Insider Intelligence. Moreover, Morgan Stanley estimates that e-commerce sales could increase to 16% of total retails sales in Latin America by 2025. That's a big jump from the estimated 11% penetration rate today.
E-commerce is still growing in Latin America. MercadoLibre is the top platform for e-commerce. And the company has what it takes to stay on top. That's why MercadoLibre is a top e-commerce stock for the next decade.
2. Amazon
I know, I know. I won't score any points for originality when it comes to calling Amazon a top e-commerce stock for the next decade. But originality doesn't matter when it comes to investing. Market-beating returns are what matter. And Amazon can still deliver those for shareholders.
NASDAQ: AMZN
Key Data Points
I've shared this in past articles, but it bears repeating here: There's a strong correlation between Amazon's stock price and its operating income, as seen below.
Cloud computing platform Amazon Web Services (AWS) has long produced the bulk of Amazon's operating income. However, the company's e-commerce operations have contributed as well in the past. That changed during 2022, with its North America business segment registering a $2.8 billion operating loss, dragging down overall results for Amazon.
The good news for shareholders is that Amazon's North America segment (which is mostly e-commerce) returned to an operating profit of $898 million in the first quarter of 2023. And now that e-commerce in North America is profitable again for Amazon, I expect total operating income to rebound nicely in coming quarters and boost the stock price.
Amazon is the largest e-commerce company in the world, and that comes with perks. One interesting perk right now is its advertising business. The company is taking advantage of the enormous traffic to its e-commerce platform and leaning into ads. In Q1, advertising revenue of $9.5 billion was up a solid 21% year over year. And it's just the latest demonstration of Amazon finding ways to keep growing even at this scale.
Profitable growth at scale is a big reason to be optimistic about Amazon stock for the next 10 years.
3. Chewy
Whereas MercadoLibre and Amazon are general platforms, I wanted to discuss a more niche opportunity with Chewy, a company solely focused on pets.
NYSE: CHWY
Key Data Points
According to the 2023-2024 APPA National Pet Owners Survey, Gen Z and Millennials represent 49% of all pet owners in the U.S. That's an incredible statistic. In fact, pet ownership is extremely prevalent among younger generations. According to the Forbes Advisor 2022 Survey, 86% of Gen Zers own a dog and 81% own a cat.
As common as pet ownership already was, it appears like it's only becoming more prevalent -- a wonderful thing to note if you're looking for a stock to buy for the next 10 years. And as pet ownership increases in popularity, it appears pet owners are more comfortable to spend more. Back to the National Pet Owners Survey, spending on pets increased nearly 11% in the U.S. during 2022 alone.
This is an incredible tailwind for a pet e-commerce company like Chewy. However, if Chewy has taught investors anything since going public, it's that it's hard to make money selling pet supplies. Ironically, I think this could actually be a good thing for Chewy. Whereas newcomers will struggle to turn a profit, Chewy is already big enough to be profitable.
CHWY Net Income (TTM) data by YCharts
Chewy's size can be an advantage: It already has 17 fulfillment centers as of the end of 2022, allowing it to service 80% of the U.S. population with overnight shipping. If a competitor wants to go toe-to-toe with Chewy, it will need to spend billions of dollars to do it.
But there's something extra special about Chewy's fulfillment centers. In 2019, management invested in warehouse automation, and this decision is what allowed the business to become profitable. And now that it has scale and can fulfill orders profitably, I believe Chewy will be able to ride the growing pet trend higher over the next decade.
I may not know exactly where the world is going, but I believe e-commerce will continue to grow. And I may not know exactly how much money they'll make or what the price will be for their shares, but I believe MercadoLibre, Amazon, and Chewy are stocks to buy for the next 10 years.
If I had to pick just one today, I'd pick MercadoLibre. In my opinion, it may have the biggest upside of the three because of how big and fast-growing the market in Latin America is.
