Picking individual stocks can often be a fun exercise for investors, but real long-term returns often depend on the composition of the overall investment portfolio. A key principle in building a balanced equity portfolio is diversification, and an important way to achieve diversification is by gaining exposure to quality companies that generate their income and operate from different parts of the world.
While there are several index funds that offer opportunities to invest in international companies, U.S. investors looking to invest in individual companies likely won’t go wrong considering positions MercadoLibre (NASDAQ: MELI) And adyen (OTC: ADYE.Y). The accomplishments of these two companies should put them on investors’ radars regardless of location, and their geographic diversity is just another reason to add them to the portfolio.
1. MercadoLibre: A Latin American leader operating in its own sphere
The world has endured several economic challenges over the past 15 years, but there has been one constant for MercadoLibre investors: the company’s outperformance versus the S&P500 Index. The Latin American e-commerce and fintech leader has comfortably outperformed the S&P 500 index over the previous one-, five- and ten-year periods, and has returned over 4,000% since the company went public, versus the 174% of the S&P 500 offering in the period year 2007.
MercadoLibre operates in 18 Latin American countries, with Brazil, Argentina and Mexico being the top three markets. The company has grown into a one-stop destination for consumers thanks to its thoughtful investments in consumer experience, technology, a broad product catalog, and its shipping and logistics network.
From 2019 to 2022, gross merchandise volume (GMV) — the total value of transactions conducted on the platform — for MercadoLibre’s e-commerce business has grown 2.5 times to $34.5 billion. The shipping service Mercado Envios sends packages faster and at the same time causes lower internal costs for the company. In 2022, Mercado Envios delivered 80% of packages within 48 hours, compared to just 44% in 2019.
Additionally, as more consumers visit MercadoLibre’s website, the company earns more advertising revenue. In the fourth quarter of 2022, ad revenue hit 1.4% of GMV, which is five times what it was three years ago.
Image source: Getty Images.
The company’s fintech arm, Mercado Pago, has evolved into an all-encompassing digital financial services provider in recent years. In addition to its core payment processing services such as the digital wallet for consumers and mobile point-of-sale devices for merchants, MercadoPago also offers credit cards, savings accounts, wealth management and loans. From 2019 to 2022, total payment volume on the Mercado Pago platform increased fourfold and the company’s fintech revenue increased fivefold.
MercadoLibre continued its excellent execution in 2022, growing its revenue 53% year over year to $10.5 billion. On the profitability front, gross profit margin increased from 43% in 2021 to 55% in 2022 and operating profit margin increased from 6% to 10%. The company also generated around $2.5 billion in free cash flow.
MercadoLibre continues to differentiate itself from the competition. The company’s continued expansion into newer geographies, gaining greater share in its existing markets, and growing its products and services (particularly fintech) are expanding its overall opportunities. It’s hard to find a more promising company to gain a foothold in the growing region of Latin America than MercadoLibre. Stocks trading at 6 times price to sales aren’t overly expensive to hold a small position for long-term investors.
2. Adyen: A Dutch innovator looking to spread his wings
Adyen, the Netherlands-based provider of payment processing services for merchants, is on a mission to revolutionize payments and related financial services.
Adyen’s modern unified commerce platform enables merchants to accept payments across multiple distribution channels (online, in-store, buy online, collect in store, or other variations) in various forms of digital payments in their customers’ currency. and from any geographic location.
The simplicity and lower cost of integrating and operating Adyen’s platform has garnered it many large customers, including Microsoft, MC DonaldsAnd Etsy.
At the end of 2022, Adyen employed over 58% of its employees in Amsterdam, where the company is headquartered. Overall, 72% of the company’s workforce was in Europe, approximately 14% in North America, with the rest spread across Asia Pacific and Latin America.
In 2022, the Europe, Middle East and Africa (EMEA) segment accounted for 56% of Adyen’s revenue. North America contributed about 25% of sales, while Asia Pacific and Latin America made up the rest. With its main businesses and revenue streams outside of Europe, Adyen offers US investors a great opportunity to diversify their geographic exposure.
But investors shouldn’t let their tails wag the dog, as diversification shouldn’t be the primary reason to consider Adyen as an investment. Adyen is a potentially compelling investment opportunity primarily due to its business development and future prospects.
In the four years from late 2018 to late 2022, Adyen quadrupled the volume of payments processed to €767.5 billion (about US$812.6 billion) and almost quadrupled its revenue to €1.3 billion (about US$1.4 billion). U.S. dollar). And the company has succeeded while Maintaining an earnings before interest, taxes, depreciation and amortization (EBITDA) of over 50%. Adyen also turned nearly 50% of its revenue into free cash flow in 2022. It grows profitably on a large scale.
Adyen’s success is underpinned by its relentless long-term focus, culture of continuous innovation and fiscal responsibility. While many companies are desperate to cut costs in the face of a difficult macroeconomic environment, Adyen, with €6.5 billion in cash on its balance sheet, is hiring heavily and investing in expanding its infrastructure. The company is driving its next phase of growth.
Adyen shares are trading near their lowest price-to-free cash flow multiple of 18. Now is a good time for long-term investors to take a close look at this winner and diversify the sources of their portfolio returns.
10 Stocks We Like Better Than MercadoLibre
When our award-winning team of analysts have a stock tip, it can be worth listening. After all, the newsletter they’ve been running for over a decade is Motley Fool stock advisorhas tripled the market.*
They just revealed what they think are the top ten stocks investors can buy right now… and MercadoLibre wasn’t one of them! That’s right — they think these 10 stocks are even better buys.
Check out the 10 stocks
*Stock Advisor returns as of February 8, 2023
Kaustubh Deshmukh (KD) has positions in Adyen, Etsy, MercadoLibre and Microsoft and has the following options: Short March 2023 $160 calls on Etsy. The Motley Fool has positions in and recommends Adyen, Etsy, MercadoLibre, and Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
