Many retail investors like to follow and imitate the actions of those whom they consider genius investors. Well-known stock pickers like Warren Buffett and Cathie Wood have developed considerable followings, and, rightly or wrongly, investors will sometimes buy stocks because investors they admire own them.
But those geniuses also pursue differing philosophies, a factor that explains why Buffett and Wood, for example, tend to pick different stocks from each other. Although an individual stock may not fit with every investor's philosophy, investors are likely to beat the averages with stocks such as Apple (AAPL -0.35%), Amazon (AMZN 3.43%), and MercadoLibre (MELI 3.09%). Let's find out a bit more about these three no-brainer stocks.
1. Apple
Apple is the largest investment in Buffett's Berkshire Hathaway portfolio, and it should come as no surprise that it is popular with smart money investors.
This popularity is no accident. The maker of the iPhone developed an ecosystem of software, hardware, and services that draws customers to the iPad, Mac computers, and its other popular tech products. That ecosystem dramatically expanded in recent years, adding iCloud, Apple Pay, Apple Music, Apple TV, and other offerings. Those apps make up Apple Services, the segment that has become the fastest-growing part of the company.
Moreover, with nearly $178 billion in liquidity, it offers investors one of the most stable balance sheets in existence. And with the company generating $80 billion in free cash flow in the first nine months of its fiscal 2023 (a period that ended July 1), that stability is not in any danger.
Admittedly, its price-to-earnings ratio of 30 is not cheap. But after the stock lost about one-fourth of its value in 2022, it's up by about 37% year to date in 2023. And as long as its primary businesses continue to drive growth, the stock should continue marching higher over time.
2. Amazon
The perspectives of consumers and investors continue to diverge with regard to Amazon. Consumers know it for e-commerce and its popular Amazon Prime service. But to investors such as Buffett, such offerings are the public face of a company making its most significant gains in areas such as Amazon Web Services (AWS), its cloud computing arm.
In the first six months of 2023, AWS accounted for 84% of the company's operating income. And while AWS's net sales grew by 14% yearly in the first half of the year, businesses within its e-commerce segments made more significant gains. Digital advertising, third-party selling services, and subscriptions grew at faster rates.
Additionally, Amazon amassed $70 billion in liquidity. Indeed, slumping sales in past quarters turned free cash flow negative, but thanks to free cash flow gains made in Q2, it now claims almost $8 billion in free cash flow over the last 12 months.
Furthermore, the stock has returned more than 58% since the beginning of the year, mainly due to AI-driven optimism. Even though that increase raised its price-to-earnings ratio to 107, that multiple compares well with its historical averages. This should keep the investing geniuses in Amazon, even if the public does not fully appreciate the non-consumer-facing parts of the business.
3. MercadoLibre
The success of e-commerce-oriented conglomerates also boosted a company that many call the "Amazon of Latin America." MercadoLibre was a first mover in bringing e-commerce to the region.
Moreover, it successfully turned regional challenges into new revenue streams. Since the nations of Latin America are still more cash-based economies, the company developed fintech capabilities to facilitate online sales. These became the fintech subsidiary Mercado Pago. The company has since formed logistics, advertising, and other businesses that support one another. Such synergies likely attracted interest from Wood's Ark Invest. Two of its exchange-traded funds have positions in MercadoLibre.
The synergies fueled rapid growth that turned its net income positive beginning in 2021. Net income in the first half of 2023 was $463 million, rising 146% from the same period last year.
With that newly profitable status, it has amassed less than $5 billion in liquidity. Additionally, it generated about $2 billion in free cash flow in the first six months of 2023, making it likely this liquidity will grow.
Furthermore, the recent profitability gave it a price-to-earnings ratio of 82. However, given the rapid profit growth, many investors will be willing to overlook that high earnings multiple.
Additionally, the stock has risen by about 46% this year. With that momentum, MercadoLibre will likely continue growing as it further deepens its presence in Latin America.
