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2 Top Growth Stocks I'm Buying Thanks to the Market Sell-Off

While sell-offs in the market can be hard to stomach, they can offer tremendous buying opportunities to investors looking to add to their portfolios. Growth stocks can be especially volatile during turbulent times in the market, because they generally trade at high valuations that already factor in some significant expectations for growth.

This temporary volatility appears to be the case for the two previously unstoppable companies that we will look at today. Beautifully positioned to capitalize on two undeniable megatrends taking place in the world economy, these two stocks have been sold off over short-term fears, presenting patient investors with incredible long-term investing opportunities.

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MercadoLibre: Quarterly sales up 67% year over year

Led by CEO Marcos Galperín, MercadoLibre (NASDAQ: MELI) has its sights set on becoming the dominant e-commerce platform in Latin America. According to Glassdoor reviews, Galperín has a 95% approval rating from his employees and has helped build a culture that rates 4.4 stars out of 5. Generally, an approval rating above 90% and a company rating above four stars are excellent, making MercadoLibre's numbers incredible.

Operationally, the company has four main business lines:

  • MercadoLibre: marketplace
  • Mercado Envios: logistics
  • Mercado Pago: payments and fintech
  • Mercado Credito: credit cards and loans

Through these lines, MercadoLibre has effectively become a one-stop shop for all things e-commerce across Latin America and its population of 646 million. With 79 million active users, the company already has a solid customer base but still has an immense runway.

While still focused on building out its customer base, MercadoLibre has already become deeply engrained within the Latin American economy. During the company's third-quarter earnings call, chief financial officer Pedro Arnt said, "Our platforms have enabled the main source of income for over 900,000 families in our region, and we generated six new jobs per hour during 2020 directly, or semi-directly through our ecosystem."

Despite growing gross merchandise volume (GMV) by 30% for the third quarter year-over-year, the company's overall revenue growth of 73% over the same time was even more impressive. This higher growth in sales compared to GMV highlights Mercado Pago's and Mercado Credito's rapid growth, led by the near-quadrupling of its overall credit portfolio year over year to $1.1 billion.

All in all, MercadoLibre's forward price-to-earnings (P/E) of 130 leaves the stock looking expensive, even after its recent drop. However, considering the company's strong growth rates, its customer base's growth potential, and the overall megatrend that is global e-commerce, MercadoLibre could be a year or two of solid growth away from making today's prices look like a bargain.

Roku: Quarterly sales up 51% year over year

Running a massive streaming platform with over 56 million active accounts, Roku (NASDAQ: ROKU) is much more than the small streaming player it gained notoriety for initially. Operating with two distinct revenue sources, platform and players, Roku uses a variation of the loss-leader strategy to fuel its growth machine.

By selling its players cheaply (sometimes at a loss), the company aims to get as many customers onto its platform as possible. In fact, for the third quarter, Roku's gross margin on its players was a negative 15%. So how does this translate to Roku's stock rising over 600% over the last four years?

Simply put, the company's sales related to its platform segment have exploded: up 82% year over year for its most recent quarter. Furthermore, this segment's gross margin is a stellar 65%, easily offsetting the loss from its player segment. Accounting for over 85% of Roku's total sales, platform sales are derived from content distribution and advertising.

Speaking to the opportunity that its platform segment offers, CEO Andrew Wood said: "It's the fact that if you look at TV time in the U.S. today, adults 18 to 49 spend 42% of their TV time streaming. But if you look at the amount of ad spend on streaming versus traditional TV, only 22% has moved to streaming."

As this gap continues to narrow, investors can expect to see Roku's average revenue per user (ARPU) continue to expand, despite already jumping nearly 50% for the third quarter year over year.

In addition to this, Roku recently announced a fascinating deal with Shopify, potentially setting the stage for a relationship that would allow small and medium-size businesses to advertise directly through its platform. While still in the testing phase, any partnership with the behemoth that Shopify is becoming could be highly profitable to investors over the long term.

Overall, Roku has positioned itself beautifully to capture advertising's continued transition from linear TV to streaming. Because of this, and despite trading at 120 times forward P/E, Roku's ballooning ARPU and steadily increasing user count have it destined to be a long-term outperformer in the market.

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Josh Kohn-Lindquist owns shares of MercadoLibre, Roku, and Shopify. The Motley Fool owns shares of and recommends MercadoLibre, Roku, and Shopify. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.


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