It's been a tough past few weeks for the stock market, but it's been even tougher on shareholders of MercadoLibre (MELI 3.09%). Investors in the so-called "Amazon of Latin America" have watched the share price of the economically sensitive stock fall 17% from its September high. Marketwide headwinds could continue to take an oversized toll on this ticker.
If you suspect the global economy is on a firmer footing than the market's recent performance suggests, however, you might want to step into MercadoLibre on this sizable dip. There are three reasons this stock could outshine most others in a rekindled bull market.
3 reasons to buy MercadoLibre stock
MercadoLibre really is a lot like Amazon in several key ways, but the description isn't quite complete. It's also a lot like PayPal as well as eBay, managing a digital payment platform and a variety of e-commerce platforms that serve much of the South American and Latin American market.
If you know anything about the region, then you likely know most of the national economies have been in better shape than they're in now. These countries were hit particularly hard by the pandemic, and they've struggled more than most to push past it.
The United Nations Economic Commission for Latin America and the Caribbean recently reported Latin America's economy will only grow a modest 1.7% this year, and will likely slow further next year. Still, MercadoLibre could be compelling for reasons beyond the possibility that this outlook is unnecessarily pessimistic. Here's a rundown of the top three bullish arguments.
1. The region's economic growth is expected to reaccelerate
The United Nations' near-term expectations for the region's economy should be taken with a grain of salt. And South America's economic growth could perk up after next year, with MercadoLibre stock perking up well before that happens.
In fact, that's what the World Bank expects to happen. It's calling for the continent's economic growth to accelerate from this year's estimate of 2% to 2.3% in 2024, mirroring expectations from the International Monetary Fund.
Then there's the upside few investors have yet to fully appreciate. That is, while South America is still seeing plenty of civil unrest, it's one of the few regions that's relatively shielded from the fallout stemming from the conflicts in Ukraine and Israel. It will be allowed to foster growth without worrying about too many geopolitical matters getting in the way.
2. South America's e-commerce industry is exploding
Meanwhile, Latin America's rising economic tide is proving a particular boon for the region's e-commerce industry.
Think back to the way things were in the United States 20 years ago: Online shopping was nothing new; neither were digital wallets. These businesses were in their infancy, though, with their highest-growth days still ahead of them.
That's where South America's e-commerce market is now. Thanks to the fairly recent proliferation of broadband and better mobile connectivity, the region's consumers are now flocking to online shopping options. The firm Americas Market Intelligence expects Latin America's e-commerce market to be 22% bigger in 2026 than it's on pace to be this year, led by Brazil, Mexico, and Colombia -- all countries where MercadoLibre has a strong presence.
And its digital payments platform Mercado Pago is particularly well positioned for growth. Mordor Intelligence believes Latin America's mobile payment market will grow at an annualized pace of 24.5% through 2028.
Mercado Pago is clearly already capitalizing on this opportunity, too. MercadoLibre's total payment volume nearly doubled year over year during the quarter ending in June, with its total number of digital wallet users growing 22% year over year to 26.1 million.
3. MercadoLibre stock is significantly undervalued
Last but not least, while the stock's been losing ground for over a month now, the analyst community isn't flinching. It still has a consensus price target of $1,620.60, which is 37% above the stock's present price.
In fact, MercadoLibre's current price is below the lowest of all analysts' present targets. The vast majority of these professionals also rate the shares not just a buy, but a strong buy, while even the ones who don't love it still aren't calling it a sell.
There's nothing wrong with questioning analysts' calls -- nobody's perfect, after all. But with most of the 22 analysts following this stock remaining this bullish, however, it would be wise to heed their collective wisdom. A lot of trained professionals are clearly seeing something in the company here, even if most individual investors aren't seeing it right now.
It's not perfectly suited for all portfolios
It's not a pick that's ideal for everyone. Although it's a U.S.-listed stock, the company is headquartered in Uruguay, and its business operations are limited to Latin America and South America. It could be tough to keep your finger on the pulse of this company and its core market. It can also be tricky just getting information from the company about its business.
That's why this ticker tends to be a bit more volatile than those of U.S.-based businesses.
If you can stomach a little extra volatility and you don't mind doing a bit more digging for information, though, MercadoLibre is a great -- and underestimated -- way to add some international exposure to your holdings. That could prove highly beneficial in a current environment rife with political pitfalls in other parts of the world.
