Since hitting its lows in June, the Nasdaq the index rose by almost 25%. Such a move has investors wondering if the index is in a bearish rally or has truly reverted to a bull market.
Although investors do not yet know the answer to this question, certain stocks should become excellent long-term choices, regardless of short-term market fluctuations. In the consumer space, retail inventory such as Costco (COST -1.15%) and MercadoLibre (MELI -6.93%) showed such potential.
When it comes to reliability, few consumer stocks match Costco. The company has been successful in driving revenue growth in almost all economic environments. Its attractive product range and competitive prices have manifested a virtuous circle of revenue increase and market expansion.
Although the United States has 577 of its 836 stores, many medium-sized subways served by walmart‘s Sam’s Club does not yet have a Costco competitor. Additionally, many major US metros, especially east of the Rockies, still do not have a business center. So these commercially oriented Costco warehouses can still help drive national growth.
Moreover, only 259 sites serve the rest of the world. Since Costco hasn’t addressed the cultural issues that have hampered Walmart’s growth outside of North America, it should face few problems expanding further overseas.
Costco claims a broad base from which to grow. In the first nine months of fiscal 2022, it posted revenue of $152 billion, up 16% from the same period in 2020. Additionally, despite rising commodity costs, its $4 billion profit for the first three quarters of 2022 jumped 19% from with the same deadline in 2020.
Such growth has helped the stock soar 23% over the past year, a period when the S&P500 Fallen slightly. But the challenge with Costco stock is its cost. Largely due to its track record of reliable growth, its P/E ratio is 44. That’s significantly higher than Walmart at 30 times earnings or Target at a P/E ratio of 15, which raises questions about whether Costco stock is worth paying for.
Still, analysts predict revenue growth of 16% for the remainder of fiscal 2022 and 9% next year. Such steady increases and likely future profits could make Costco’s spending worthwhile.
MercadoLibre has become one of the best performers in recent months. At a time when AmazonMercadoLibre online sales stabilized, MercadoLibre online sales remained relatively robust.
However, like Amazon, MercadoLibre is not making its biggest gains in e-commerce. In the second quarter of 2022, its trade-related revenue increased by 22%. That doesn’t compare to the fintech segment, which grew its total payments volume by 72% over the same period to $30 billion.
The level of fintech growth is particularly interesting since Latin America’s dependence on money has necessitated the creation of fintech-related applications. This activity, which also supports MercadoLibre’s non-e-commerce fintech activity, has helped make MercadoLibre a forerunner in Latin American fintech.
Driven primarily by e-commerce and fintech, net revenue for the first six months of 2022 was $4.8 billion, up 57% from the same period a year earlier . This included a 43% increase in net revenue cost and an 81% increase in operating expenses. Still, net income of $188 million for the first half of the year is well above the $34 million in revenue for the first two quarters of 2021.
MercadoLibre does not publish tips. Analysts predict revenue growth of 47% this year and 28% in 2023. While that means robust growth, it does represent some downturn.
Still, the roughly 50% decline in the share price from the 52-week high should help offset slower revenue growth. And if you also consider the price to sales ratio (P/S) of six, MercadoLibre looks like a much better buy.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Will Healy holds positions at MercadoLibre. The Motley Fool holds positions and endorses Amazon, Costco Wholesale, MercadoLibre, Target and Walmart Inc. The Motley Fool has a Disclosure Policy.