Nasdaq Bear Market: 3 stocks I would definitely buy
Nasdaq and growth tech stocks have generally suffered a brutal bear market. This performance dampened both expectations and stock prices as investors brace for downturns.
However, many growth stocks have managed to minimize the downturns or avoid them altogether. To this end, actions like MercadoLibre (MELI 4.71%), Alphabet (GOOGL 2.39%) (GOOG 2.36%)and tractor supply (TSCO 1.04%) should remain on investors’ watch lists.
E-commerce stocks have seen lower growth across the board, but you won’t know that by watching MercadoLibre’s performance. Despite the macroeconomic challenges, its total payments volume exceeded $30 billion in the second quarter for the first time in the company’s history.
However, MercadoLibre has built much of its success on its e-commerce support segments. For example, Latin America is primarily a money-based society. Thus, the solutions of its Mercado Pago segment help unbanked customers to do e-commerce. Additionally, its Mercado Envios segment helps sellers store, package and ship goods to its largest markets.
Such varied offerings boosted its bullish versus bearish scenario, helping revenue to reach over $4.8 billion in the first half of 2022, 57% higher than the same period in 2021. The company also posted a profit net of $188 million, a 452% year-over-year increase as slower revenue cost growth offset rapid increases in operating expenses.
MercadoLibre does not release forecasts, but analysts forecast revenue growth of 46% for the year, indicating that revenue growth should remain strong even if it slows. And even after bouncing off June lows, it’s still selling at around half of its 52-week high. The company’s price-to-sales (P/S) ratio of about six is higher than either Amazon Where Sea Limited (at three and four, respectively). Still, with MercadoLibre avoiding significant revenue declines from its peers, it could be worth that higher valuation.
Certainly, current conditions may dampen Alphabet’s appeal. First, online advertising suffered as consumers resumed more offline activities after the lockdowns ended. And this industry could suffer more during two consecutive quarters of economic growth.
However, Alphabet holds over $140 billion in cash reserves. Over the years, she’s used some of her bountiful cash flow to branch out into dozens of other businesses, including Waymo and Verily Life Sciences. However, one of the few non-advertising segments it publishes results for is Google Cloud. This cloud segment grew revenue by more than 39% year-over-year in the first half of 2022, to approximately $12.1 billion.
This cloud performance contributed significantly to overall revenue for the first two quarters, which reached $138 billion. This represents a 17% increase over this period. However, net income fell 11% to just over $32 billion during this period. Rising costs and the disappearance of equity gains led to lower profits.
Despite falling revenue, Google’s parent company’s performance nearly matched the S&P500. And its price/earnings ratio (P/E) of 22 makes it much cheaper than Microsoft or Amazon, with earnings multiples of 29 and 125, respectively. This low valuation, along with its solid balance sheet and numerous investments, make this decline less likely to last.
Amid the growing trend of remote working, Americans have increasingly moved from cities to suburbs and rural areas. That likely puts them in the market area of Tractor Supply, which operates more than 2,000 stores in 49 states.
These locations primarily serve so-called “hobby ranchers”, who engage in hobby farming. Its target market also includes horse owners, suburban owners, contractors and tradesmen. Additionally, the company owns Petsense, a pet-focused provider with 178 locations.
These trends helped revenue to more than $6.9 billion, up 8% from the same period in 2021. Net income was $584 million, up 6 % over the same period. A rise in the cost of goods sold and higher tax charges slightly reduced its margins.
Still, analysts raised 2022 revenue estimates to $14 billion mid-term, bringing annual revenue growth to 10%. That should help boost the company — and it has already outperformed the S&P 500 over the past year.
Moreover, the 21 P/E ratio for the retail stock is only slightly higher than the 20 multiple of the earnings of Home deposit, which competes in Tractor Supply’s suburban markets. As changing work trends make a rural lifestyle more attainable, more customers and investors are likely to turn to this retailer.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Will Healy holds positions at MercadoLibre. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Amazon, MercadoLibre, Microsoft and Sea Limited. The Motley Fool recommends Tractor Supply. The Motley Fool has a disclosure policy.