According to the US Department of Labor, the consumer price index rose 7.9% in February, marking the fastest growth in inflation since 1982. Of course, rising prices tend to reduce consumer spending, creating a difficult business environment. And that concern triggered a significant downturn in the broader market. In fact, heavy tech Nasdaq Compound plunged 13% from its high, putting the index in correction territory.
Of course, many individual stocks fell much further. Assets received ( UPST 7.63% ) and MercadoLibre ( MELI 3.17% ) are down 68% and 40%, respectively, despite both companies consistently delivering strong financial results. But there is a silver lining: the ongoing selloff creates a buying opportunity for long-term investors.
Here’s why you should consider adding Upstart and MercadoLibre to your portfolio.
1. Assets received
Just Isaac was founded in 1956 and its credit risk solution – the FICO score – has become a staple in the lending industry. In fact, Fair Isaac’s customer base includes 95 of the top 100 financial institutions in the United States and half of the top 100 banks in the world. But Upstart seeks to disrupt this dominance. It does away with traditional credit score-based lending models and instead relies on more modern technology.
Specifically, Upstart leverages big data and artificial intelligence to help banks and credit unions quantify risk, underwrite loans, and automate the lending process. Its platform collects over 1,500 details per applicant and measures these data points against 21.6 million (and counting) refund events. To that end, each time a borrower makes or misses a payment, Upstart’s AI models get a little smarter.
Why is this important? By more accurately quantifying risk, Upstart helps its partners approve more loans and offer lower interest rates, while keeping loss rates low. In fact, a Consumer Financial Protection Bureau report suggests that Upstart’s AI models approve 27% more applicants than traditional credit models, and they do so with 16% lower average interest rates.
Unsurprisingly, this value proposition has translated into phenomenal growth. Upstart ended 2021 with 38 banking partners on its platform, more than tripling from 2020. Even better, total transaction volume grew 241% to $11.8 billion, revenue skyrocketed by 264% to $849 million and the company generated GAAP net income of $135 million. compared to $6 million in 2020.
Looking ahead, management pegs its current addressable market at $823 billion, a figure that includes the personal and auto loan verticals. But the company plans to expand its platform, eventually entering the $4.6 trillion mortgage market and the $644 billion small business loan market. In short, Upstart’s AI-powered business model is disrupting a multi-trillion dollar industry. That’s why this growth stock looks like a smart long-term investment.
MercadoLibre operates in 18 Latin American countries and its activities cover two high-growth sectors: e-commerce and digital payments. Even better, it’s the market leader in both cases. Its online marketplace averages 668 million visits per month, almost four times more than its closest competitor, and its fintech platform (Mercado Pago) has helped democratize digital payments in a region where relatively few people have a bank account or debit card.
To further strengthen its leadership, MercadoLibre has built an extensive logistics network that simplifies shipping for sellers, speeds delivery for buyers and reduces costs for the business. In Q4 2021, nearly 90% of items sold on the marketplace were shipped through its managed logistics channels. This represents an increase from 77% in the fourth quarter of 2020. In other words, merchants are becoming more and more dependent on MercadoLibre.
Unsurprisingly, this translated into strong financial performance last year. Gross merchandise volume (GMV) increased 35% to $28.4 billion. Even better, MercadoLibre’s take rate reached 16%, compared to 12% in 2020. In other words, MercadoLibre retains a higher percentage of GMV, which highlights its pricing power. As a result, revenue grew 78% to $7.1 billion in 2021. Earnings were $1.69 per diluted share, compared to a loss of $0.07 per diluted share the year before.
More importantly, there is plenty of room for future growth. Online retail sales are expected to reach $160 billion in Latin America by 2025, according to Statista. This should be a significant tailwind for MercadoLibre’s commerce and fintech businesses. And with the stock trading at 8.3 times the sell – well below its five-year average of 13.8 times the sell – now seems like a great time to buy some stocks.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.