2 still for cheap top stocks

Top stocks still too cheap? To be honest, two names immediately come to mind: PayPal (WKN: A14R7U) and Mercadolibre (WKN: A0MYNP). Both have an ecosystem, an intact business model and leading names, at least in their core markets. Still, stocks just can’t get out of the quark.

This can be an opportunity for foolish investors. So let’s take a closer look to get a sense of the long-term opportunity. Or for the price, which is quite low.

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Cheap top warehouse: Mercadolibre

Mercadolibre’s stock has once again moved away from the 1,000 euro mark. Currently, investors can pick up individual share certificates for 840 euros. This is relatively cheap, as the price-to-sales ratio of now below 4 underlines. Finally, in local currencies, revenue growth was again a strong 60% year over year in the third quarter, which is certainly not small.

Mercadolibre creates an ecosystem in e-commerce, payment, logistics and other services related to these core markets. This includes, among other things, an asset manager and a loan provider. This shows that many consumers no longer need to rely on other solutions. In view of the fact that competitors such as Sea Limited are increasingly withdrawing from the region, this could mean a great potential for further growth.

Mercadolibre is on track to become the Amazon and PayPal of Latin America, with $2.7 billion in third-quarter sales now likely just the tip of the iceberg. After all, there are also 600 million consumers on this continent who squeeze into such markets. The potential has only been tapped superficially, but in the meantime, competitive advantage is increasing and profitability is also beginning to show.

PayPal: A question of trust

How would you describe a payment processor that has 430 million members and processes $1.25 trillion a year? I would say: It is credible, but it is not necessarily a case for restructuring. The market seems to see it differently, because PayPal’s stock currently has those conditions, but a price that has lost about three-quarters of its peak market value.

PayPal has some operational issues. Growth is slowing and profitability is likely to decline in 2022. There’s no doubt: it’s not perfect. But a price-to-sales ratio of around 3.5 and a 2021 price-to-earnings ratio of around 21 are now cheap for it. As I said: There is further volume growth, and there is also still potential for further growth.

PayPal may have some difficult quarters and years ahead. As long as the ecosystem and volume grows, I am long-term oriented but optimistic. A cheap top stock, which is actually too cheap, seems to be available here, and the bottom line is actually very intact.

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Vincent owns shares in Mercadolibre and PayPal. The Motley Fool owns shares in and recommends Mercadolibre and PayPal Holding.

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