The markets have dealt with several headwinds over the past few years, yet the S&P 500 has pushed through all that turmoil and is again posting new highs. It's another reminder that, regardless of how the markets perform in the near term, investors will eventually be rewarded for holding shares of growing companies.
The long-term performance of a stock is highly correlated with the growth of the underlying business. With that in mind, let's look at three stock picks that Motley Fool contributors believe would make great additions to a long-term investor's portfolio right now.
MercadoLibre: A perennially undervalued growth stock
John Ballard: One way to grow your money is to look for companies with high growth and plenty of growth runway still ahead. There's not many stocks that fit this criteria better than the leading e-commerce company in Latin America, MercadoLibre (MELI 3.09%).
A $1,000 investment in the stock 10 years ago would be worth over $17,000 right now. And the same factors that contributed to that growth are still in play. MercadoLibre reported accelerating revenue growth in the third quarter of 2023, growing 69% year over year on a constant-currency basis.
The company is posting such strong growth primarily because e-commerce penetration in three of its largest markets -- Brazil, Mexico, and Argentina -- is growing at high rates. Retail e-commerce sales across Latin America are projected to reach over $200 billion in 2028, according to Statista, up from just $41 billion in 2017. That's a massive tailwind for the company.
After investing in its core marketplace business and fintech offerings for many years, the company is also starting to show an improving profit margin. This is a major catalyst to push the stock higher in the near term. Operating income reached $685 million in the third quarter, a year-over-year increase of 194% on a constant-currency basis.
The stock still trades 14% below its previous peak from a few years ago. Investors can expect the stock to hit new highs in the years to come and deliver wealth-building returns.
Airbnb: This could be the online rental platform's best year yet
Jeremy Bowman: Airbnb (ABNB 0.75%) is no stranger to controversy, as the company has been criticized since its early days for taking housing stock away from local residents and operating as an illegal hotel business. More recently, joking criticism about Airbnb cleaning fees and chore lists has become something of a meme online.
However, it seems as though Airbnb is getting the last laugh. The company just reported a fourth quarter with a 17% year-over-year increase in revenue to $2.22 billion, and its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin improved from 27% to 33%.
Airbnb also has adapted its product and business model to satisfy most of the complaints it's faced. The company changed its pricing display so that guests see the total price upfront, eliminating the bait-and-switch feeling of the cleaning fees. Since it made that move, nearly 300,000 listings have removed or lowered their cleaning fees, and 40% of its active listings now charge no cleaning fee at all.
The company is also growing its supply at a brisk pace, putting to rest concerns of over-saturation that some had dubbed an "Airbnbust." It topped 5 million hosts for the first time, and total listings rose 18% year over year to 7.7 million active listings, with particularly strong growth in the Asia-Pacific and Latin America regions.
Airbnb has also tamed the regulatory threat, as 80% of its markets had some form of regulation in place as of the end of the year. In New York City, where a strict ban on short-term rentals passed, the company found that stays in nearby areas like New Jersey spiked, and New York hosts have shifted to long-term stays. No city accounts for more than 2% of its revenue, showing how diversified the company is geographically.
Finally, Airbnb promised it would expand beyond the core this year, adding new products. The company will provide more details later in the year, but that could give the stock a jolt just as the broader business is building momentum.
Amazon: One of the greatest investments of all time
Jennifer Saibil: After a rough 2022, 2023 got investors excited again about Amazon (AMZN 3.43%) and its latest earnings update demonstrated incredible progress. The tech giant is back onto its regularly scheduled growth path after a few bumps over the past two years. Sales increased 14% year over year in the 2023 fourth quarter to $170 billion, and they were up 12% for the full year to $575 billion. After reporting its first annual net loss in a decade in 2022 (a drop of $2.7 billion), Amazon completely wiped that out with $30 billion in net income in 2023.
Core e-commerce is back in action, with faster delivery times to its more than 200 million Prime members. That's a breathtaking amount of people who rely on Amazon for their essentials, and as Amazon wows them and wins their loyalty by offering what's probably an unmatched selection of merchandise faster than anywhere else, they're likely to keep coming back.
Amazon Web Service (AWS) is holding steady, with revenue increasing 12% over last year in the fourth quarter. Although that's still below its pre-inflation rates, management says that trends are moving in the right direction. It continues to ink long-range deals with companies like Nvidia and Salesforce. It has also launched an ambitious array of generative artificial intelligence (AI) tools to stay competitive and keep its dominant position in cloud computing, where it has 31% of the market.
Advertising is its fastest-growing segment right now, increasing 26% year over year in the fourth quarter, and that's likely to remain a high-growth category. It's a no-brainer business, as third-party sellers can find buyers when they're looking to buy, and they benefit from Amazon's top-notch AI, which brings the right product ads to the right shoppers.
Amazon stock is up 70% over the past year, and it has plenty of growth drivers to keep growing and gaining.
