The stock market has had a shaky start to the year. The tech-centric Nasdaq Composite (^IXIC -2.70%) is down 7% year to date at the time of this writing. Highly valued growth stocks have been hit the hardest, which is typical when market volatility ramps up, but there are reasonably priced stocks holding up quite well.
Shares of MercadoLibre (MELI -2.27%) and PDD Holdings (PDD -3.11%) are up 22% and 26%, respectively, this year. Based on their business momentum and relatively low valuations, these stocks could have room to run.
1. MercadoLibre
MercadoLibre is a powerhouse e-commerce and fintech company in Latin America. This is one of the fastest-growing e-commerce markets globally, which has fueled MercadoLibre’s stock up 1,600% over the last 10 years.
Despite the strong returns, the stock is trading at its lowest valuation in years. The company’s revenue has grown faster than the share price over the last few years, which has brought its price-to-sales multiple down to 5 — below its 10-year average multiple of 10.
MercadoLibre is leading the e-commerce market across Brazil, Argentina, and Mexico. It offers an unbeatable group of services with a marketplace, mobile payment solutions, credit cards, merchant loans, and shipping. It has more than 100 million unique buyers on its marketplace, and this gives the company a large pool of customers to cross-sell other services to grow revenue and expand profit margins.
In fact, fintech services could be a bigger opportunity than the marketplace. The company issued 5.9 million credit cards in 2024, which is an opportunity to serve a large population of people who lack access to basic financial services in the region. MercadoLibre has the financial strength to offer market-leading deposit yields for digital banking customers while offering rewards that incentivize more shopping activity in its marketplace.
Despite economic softness in Argentina, revenue grew 37% year over year in the fourth quarter. This explosive growth and undervalued stock make it a no-brainer buy. Investors that add some shares to their portfolio and sit on it for 10 years could see monster returns as MercadoLibre expands its services across Latin America.
2. PDD Holdings
PDD Holdings is the corporate umbrella of two fast-growing e-commerce platforms: Pinduoduo and Temu. The company’s strategy is to offer a unique shopping experience centered around creating fun for customers and value. As of March 26, PDD Holdings was the top-performing Nasdaq stock year to date, and it’s still trading at a bargain price-to-earnings multiple.
The company is implementing a clever strategy that is running circles around competing e-commerce platforms. Pinduoduo uses a “team purchase” model, where friends can form groups to get bigger discounts. It’s a powerful growth model that brings unbeatable value to consumers while boosting business for suppliers. Pinduoduo has gained an 8% share of the global e-commerce market, according to Statista.
Meanwhile, Temu was started in 2022. Its strategy to offer shoppers deep discounts on a wide selection of items made it the most downloaded shopping app worldwide within just a few years.
The company has a capital-light business model. It primarily generates revenue from service fees, allowing the business to generate very high margins. In 2024, it earned $15 billion in net income on $54 billion of revenue.
With revenue also up 59% in 2024, PDD is gaining scale quickly. Higher profits will allow management to continue improving its mobile app, increase the quality of merchandise, and remain a tough competitor.
PDD has grown into a large business, yet there’s still a lot of opportunity in a global e-commerce market valued at $4 trillion and growing. The stock trades at a forward price-to-earnings multiple of 10, which is basically a fair valuation for a no-growth business. PDD’s blazing growth should deserve a higher valuation. Investors who buy shares today could see explosive returns in the coming years.
John Ballard has positions in MercadoLibre and PDD Holdings. The Motley Fool has positions in and recommends MercadoLibre. The Motley Fool has a disclosure policy.
