We might be back in a new bull market (depending on how you define the end of a bear market), but the broad indexes still trade down from all-time highs set over a year ago. And some stocks, especially the "pandemic winners," still trade at deep discounts compared to those heights.
That means that, despite the markets' growth so far in 2023, there are still opportunities for long-term investors to take advantage of the sell-off. There are two stock market bargains, in particular, that a couple of Motley Fool contributors think you should buy right now -- MercadoLibre (MELI 3.09%) and Airbnb (ABNB 0.75%). Here's why these two discounted stocks are worth further consideration.
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Latin America's e-commerce star
Jeremy Bowman (MercadoLibre): MercadoLibre may not be a household name in the U.S., but the e-commerce marketplace is the online retail leader across much of Latin America, with Brazil, Argentina, and Mexico representing its biggest markets.
The company has grown briskly throughout its history, taking advantage of a market with a fast-growing middle class, and capitalizing on new opportunities like its digital payments segment MercadoPago. In fact, most of its payment volume now comes from outside its platform, thanks in part to the distribution of mobile point of sale (mPOS) devices that help brick-and-mortar merchants process payments.
While most e-commerce companies saw revenue growth slow as the pandemic tailwinds faded, that hasn't been the case for MercadoLibre. The company just posted 58.4% currency-neutral year-over-year revenue growth in its first quarter, reaching $3 billion. Growth in both its e-commerce business and digital payments was strong, with currency-neutral gross merchandise volume up 43.3% to $9.4 billion and total payment volume nearly doubling to $37 billion.
Not only is MercadoLibre seeing strong revenue growth, but its profitability is also improving thanks to growth in higher-margin businesses -- like its third-party marketplace, advertising, which benefits from its position at the bottom of the marketing funnel, and digital payments. In fact, its operating margin improved from 6.2% in the first quarter a year ago to 11.2%, and the company should continue to see margins expansion.
In spite of the business's strong performance, the stock remains down 41% from its peak in early 2021. Investors should take advantage of the sell-off here, as MercadoLibre's profits are likely to keep ramping higher. In fact, analysts expect earnings per share to more than double over the next two years.
The business is performing better than the stock
Keith Noonan (Airbnb): Airbnb remains the clear leader in its corner of the property rental industry, and there's a good chance that investors who take a buy-and-hold approach with the stock right now will see strong returns. Even though the company consistently serves up very strong business results, its share price is down roughly 42.5% from its high.
Airbnb's well-loved platform and asset-light business model helped it nimbly navigate challenges created by the coronavirus pandemic, and the business has since returned to posting best-ever sales and earnings results. The rental specialist has already demonstrated impressive flexibility when it comes to sales and marketing spending, and it's likely that costs in this category can continue to decline as a percentage of overall revenue over the long term.
But crucially, it doesn't seem like there's any great need for Airbnb to carry out sweeping efficiency initiatives for its stock to deliver market-beating returns for investors who buy at today's prices.
Over the trailing 12 months, Airbnb recorded a free cash flow (FCF) margin of 44%. With the company currently valued at roughly $79 billion, shares trade at less than 21 times the free cash flow it generated over the last year.
The midpoint of Airbnb's current guidance range calls for annual revenue growth of roughly 18.5%. Based on guidance for the business's non-GAAP (adjusted) earnings before interest, taxes, depreciation, and amortization (EBITDA) margin to be roughly in line with last year's, it wouldn't be surprising to see FCF grow roughly in line with sales.
With impressive financial results and an encouraging long-term growth outlook, I think investors should take advantage of the disconnect between Airbnb's business strength and lagging stock performance.
