Please ensure Javascript is enabled for purposes of website accessibility

Small Cap Low-Risk Pick No. 5: MercadoLibre Inc.

By Motley Fool Staff - Apr 8, 2016 at 8:11AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

David Gardner explains why the Latin American e-commerce giant is such an exciting company, and a Rule Breaker stock pick.

MercadoLibre (MELI -3.23%) is Latin America's e-commerce giant.

In this segment from the Rule Breaker Investing podcast, Motley Fool co-founder David Gardner explains what makes the company a Rule Breaker recommendation, albeit with an important caveat.

Check out David Gardner's other favorite companies:

A transcript follows the video.

This podcast was recorded on Feb. 10, 2016. 

David Gardner: And finally, this week's stock no. 5 is MercadoLibre. MercadoLibre has a risk rating of 5, right in line with the others. It is right in between the sizes of the four that we've already covered. It's about $3.5 billion today. The stock's at $87 as I do this podcast. And this is the Latin American e-commerce giant. This is a company that we've followed for quite a long time. In fact, my first recommendation of it was in February of 2009. So, that is 7 years ago this month. The stock was at $14.22 when we recommended it. Today, it's $87, so that's not been a bad investment at all. 

But here's something that's surprised me. I've re-recommended it twice in Motley Fool's Rule Breakers since, and it's actually losing to the market from those positions starting in 2012, one of them, and then another in 2014. It's substantially down from where it was in 2014. So, in fact, speaking of substantially down, this is a stock whose 52-week high is $153, and presently, as I mentioned, is trading at around $87.

So this is a company we like a lot for the long-term. They have excellent management. I like their positioning as the leader in Latin America in e-commerce. It's a fully featured business; it can do the eBay-like (EBAY -0.69%) part of e-commerce with auctions. In fact, speaking of eBay: PayPal is such a big part of eBay's success. MercadoLibre has MercadoPago, which is also a payment system that MercadoLibre runs. And it also fulfills like Amazon (AMZN 0.25%) does. So for many countries in South and Central America, it is the e-commerce leader. And, of course, I like that area of the world. Really, I like almost all areas of the world, frankly, going forward multiple decades. I'm a real bull on global business. And I see MercadoLibre, with its ... I won't say stranglehold, but I'll say dominant position over a meaningful portion of the globe that's still early on in its acceptance and adoption of capitalism. 

In fact, my cautionary note about MercadoLibre, I'll sound right now: Some of its businesses are run in Venezuela, Argentina. If you're somebody who pays attention to business, you recognize these as countries that don't really respect entrepreneurship, and that tend to sometimes tend to just co-opt businesses altogether and say, "That's now owned by the government. Sorry, American oil company that had developed that field." These are countries that I would not want to do business in, personally. And MercadoLibre is doing business in them. And I think, over time, they will improve, and MercadoLibre will be part of that story. But it is, in the near-term, certainly a difficult business environment, sometimes, when you have to work in some of these countries. Some large countries. Fortunately, others like Brazil and Peru and Colombia and other countries that are really awakening, I think, to more prosperity for their citizens and more respect for human nature and our way of life. Those are all part of MercadoLibre's story today. So we like this company a lot.

And my general investing principle, as I close it up here this week for MercadoLibre: I like to look at replacement cost. Let me quickly define my term: If you ask yourself, what would it cost you if you and I wanted to go into business today, and we snapped our fingers and were able to make MercadoLibre disappear? We snap our fingers, whoosh, it's gone. How much would it cost you and I, how much money would we have to raise, how much effort would it take to replace what MercadoLibre is doing today? And usually, while there's no round number that I ever put to it, I just ask myself: What is really expensive and hard to replace? And I believe MercadoLibre, what it has achieved, is extremely expensive and hard to replace. So when I see the company worth less than $4 billion today, and I ask myself, what's the value of being where it is, playing for the next few decades, in terms of the profits it has coming to it, I see a very high replacement cost. So it's going to be hard for anybody else to come in and really compete in the same way that, in our country, and other countries too, is a pretty hard competitor for a lot. The replacement cost is very high for So that's my general investing principle applied to MercadoLibre.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Mercadolibre, Inc. Stock Quote
Mercadolibre, Inc.
$775.65 (-3.23%) $-25.92, Inc. Stock Quote, Inc.
$2,151.82 (0.25%) $5.44
eBay Inc. Stock Quote
eBay Inc.
$44.31 (-0.69%) $0.31

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/22/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.