If you're looking for sizzling hot stocks these days, you don't have to look far. The whole stock market seems to be on fire, with the S&P 500 up 16% since a third-quarter lull bottomed out on Oct. 27.
No one knows for sure how long the rally will last, but if you're looking for stocks that look set to keep soaring, keep reading to see two companies ready to do just that.
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1. Roku: The streaming leader is back
Roku (ROKU -10.29%) was one of many tech stocks that soared during the pandemic, only to come crashing down on the economic reopening. However, Roku has cut costs and is starting to benefit from a recovery in the digital advertising market. Through Dec. 19, the stock is up 132% for the year.
Roku's stock price actually pulled back in the last few weeks, but it still seems poised to benefit from a number of tailwinds over the coming year. These include the launch of new advertising tiers from streaming services like Netflix, Amazon, and Disney, which give Roku valuable new revenue streams. It typically takes 30% of advertising inventory from its streaming partners.
Additionally, the end of the Hollywood strikes should lead to a rebound in ad spending from Roku's media and entertainment partners, a key vertical for the company. The Fed's forecast for three interest rate cuts acts as a green light to digital advertising as the economy seems likely to avoid a recession in 2024.
Finally, Roku has already made significant progress on its cost-cutting goals after three rounds of layoffs. The company had previously announced a goal of generating a positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2024, but it just reported an EBITDA profit in the third quarter, indicating that the goal is well within reach.
Roku remains the clear leader among streaming distribution platforms. The company is updating its technology with stand-alone TVs and continues to gain market share as it expands in Latin America. At a market cap of less than $15 billion, the stock still has a lot of upside potential.
2. MercadoLibre: A Latin American leader
Nearly every e-commerce stock saw its growth rate tumble during the pandemic, except for MercadoLibre (MELI 3.09%).
The Latin American e-commerce and digital payments company has maintained a brisk growth rate and is gaining market share. It continues to build on its competitive advantages, which include its third-party marketplace, logistics network, and installed base of MercadoPago point-of-sales devices with brick-and-mortar merchants.
In recent quarters, MercadoLibre's profits have also started to increase as high-margin businesses like advertising, credit, and its marketplace ramp up.
As a result of that growth, MercadoLibre stock has nearly doubled this year and it seems poised for more gains as it delivers revenue growth and expands profit margins. For example, third-quarter revenue jumped 69% year over year on a currency-neutral basis to $3.8 billion, and its operating income jumped 131% to $685 million, giving it an operating margin of 18%.
MercadoLibre should continue to experience strong growth as it's withstood challenges from competitors like Amazon and Sea Limited, and it's also capitalized on the bankruptcy of Brazilian retailer Americanas.
MercadoLibre also looks well-positioned to outperform on the stock market. It still has a large market to penetrate in Latin America where the middle class and internet connectivity are expanding, and it's branching out beyond its three core markets in Brazil, Mexico, and Argentina. Additionally, its newer high-margin businesses like advertising and credit still have a lot of growth in front of them.
Investors can also be confident that they're in good hands with MercadoLibre management. The stock has delivered excellent returns since its 2007 initial public offering and it has executed well across its portfolio of businesses and geographies.
