With the market reaching new all-time highs and kicking off a new bull market, it's becoming obvious that some stocks are getting overvalued. This leaves some investors searching for stocks they can buy without paying a significant premium.
Recently, I added to my positions in five of my favorite companies, as I believe now represents a great time to invest in this group.
Amazon
In my book, Amazon (AMZN 3.43%) is a perfect buy in this environment. It's no longer a solely e-commerce investment, as it has other dominant business segments like advertising and cloud computing (Amazon Web Services, or AWS). Both businesses have higher margins than e-commerce, so Amazon's profit margins are seeing massive increases over time.
AMZN Gross Profit Margin (Quarterly) data by YCharts
Unlike previous periods when Amazon achieved high margins, this margin boost isn't influenced by external factors. Instead, it has all been powered by efficiency improvements and it looks sustainable.
Investors have yet to see what a fully profitable Amazon looks like, and I think 2024 could be a glimpse into that future. That's why I purchased the stock now.
Alphabet
Alphabet (GOOG 9.96%) (GOOGL 10.22%) is better known by its former name and main business segment, Google. While Alphabet may have artificial intelligence (AI) investments and a cloud computing division (Google Cloud), it's still primarily an advertising company, with nearly 80% of its revenue coming from ads. In late 2022 and through the first half of 2023, this was a bad business to be in, as companies were cutting ad budgets in preparation for a recession.
However, that recession didn't come, and these clients are starting to open up their ad budgets again, boosting Alphabet's business. In Q3, Alphabet's ad revenue rose 9.5%, getting the company back on track to produce respectable growth. Alongside other efficiency improvements, Alphabet's earnings per share (EPS) rose from $1.06 to $1.55.
The return of ad-spending plus continuous efficiency improvements have given Alphabet a cheap price tag of 22 times forward earnings, which makes it a promising buy today.
MercadoLibre
MercadoLibre (MELI 3.09%) is a top company in Latin America, and its e-commerce, logistics, digital wallet, and consumer credit businesses have become dominant products in their respective fields. When many companies' growth slowed in 2023, MercadoLibre was still full speed ahead -- it never saw its revenue growth rate dip below 50% on a currency-neutral basis. In its latest quarter, it put up its fastest sales growth of the past year at 69% (from a currency-neutral basis).
Furthermore, MercadoLibre has been improving margins, highlighted by its operating margin increase from 11% to 18.2% in Q3.
Despite this success, MercadoLibre still trades at a lower price-to-sales valuation than most of the past decade.
MELI PS Ratio data by YCharts
MercadoLibre still looks like a screaming deal now, and I'd have no problem adding even more to my position (even if it is already one of my largest positions right now).
dLocal
dLocal (DLO 0.56%) is a company few have heard of, but it is a true hidden gem. dLocal's software allows its customers (including Amazon, Google, Shopify, Spotify, and Nike) to sell their products in locations with less developed digital payment infrastructure.
While each of these companies could build its own solution for countries like India, Indonesia, or Kenya, it's far easier to concede a small amount of revenue to dLocal in exchange for their systems already being tailored for each country.
This has proven wildly successful, and dLocal's financials tell a clear story. In Q3, dLocal's revenue rose 47% year over year to $164 million, and net income increased 25% to $40.4 million. That gives dLocal a respectable profit margin of 25%.
Despite its excellent growth, strong profitability, and great business model, dLocal trades for just 22 times forward earnings, making it a great bargain.
UiPath
Finally, UiPath (PATH 0.26%) is a leader in the robotic process automation (RPA) space. This technology allows its users to automate repetitive tasks, and it has AI plug-ins to increase the number of tasks it can automate.
It's a favorite stock of Cathie Wood and her team at Ark Invest, and this stock is currently the second-largest position across all of Ark's portfolios. The company is growing at a brisk pace, with annual recurring revenue rising 24% to $1.38 billion in Q3 of FY 2024 (ending October 31). It also has a healthy net retention rate, with the average customer spending $121 for every $100 they spent last year.
As companies look to improve efficiency and integrate AI, UiPath will be a logical choice. The company's business should benefit from this trend throughout 2024 and beyond. However, UiPath's stock doesn't garner a massive premium like many AI-related stocks, trading for a reasonable 11 times sales today.
So UiPath is a great investment right now, and it could make you look like a genius if you buy and hold it for the next five years.
