There are almost 4,000 different stocks you can trade that represent companies that have valuations of at least $300 million. The sea of options is enough to make some beginning investors throw up their hands in frustration.
Heck, I'm experienced at this and I won't pretend to know enough about one-tenth of these companies to consider investing in them.
Luckily, as an individual investor, that's okay. To meet your long-term financial goals, you simply need to make a few investments in companies you understand well. Today, we'll cover the one company that I believe is the most "antifragile" -- or able to benefit when exposed to time, chaos, and uncertainty -- that I've come across in the past five years.
That company is MercadoLibre (MELI 1.49%), a powerhouse in Latin America that I believe has a very bright future in the decade to come.
Image source: Getty Images.
An inspiring mission, a wide moat, lots of optionality
MercadoLibre's mission is simple: To democratize commerce and finance in Latin America. But don't confuse "simple" with "easy." The company got its start in 1999 as an online marketplace similar to eBay. It has since morphed into an eBay/Amazon-type entity that serves as both a marketplace and an entity that can offer fulfillment (read, shipping stuff).
As you can see -- based on the number of registered users -- it has become fantastically popular.
Chart by author. Data source: SEC filings. Note that 2020 figures are accurate to Sept. 30, 2020.
This dynamic creates powerful network effects. Anyone selling goods knows MercadoLibre is the best place to offer them up online. No one else offers instant access to nearly 400 million customers. At the same time, with merchants flocking to the platform, non-users are further incentivized to join. That's a powerful moat that a start-up would have a difficult time breaking through.
Since the beginning, however, MercadoLibre has also adapted in any and every way possible to help fulfill that all-encompassing mission. The most clear example is MercadoPago -- the company's digital payment option (akin to PayPal for those in North America). Originally, MercadoPago was simply intended to grease the wheels for merchants; so many Latin Americans were "under-banked" they had no way to pay for goods online.
Over time, however, MercadoPago has become so popular that it is used more to pay for things like gas and groceries that have nothing to do with MercadoLibre's online site (off-platform) than for stuff on the website (on-platform).
Chart by author. Data source: SEC filings. Note that 2020 results are accurate to Sept. 30, 2020.
When people start using a tool like that en masse, switching costs become very high -- adding another moat around the company.
And it isn't stopping there. Currently, MercadoLibre has a host of other initiatives, including:
- Mercado Envios: A shipping solution for merchants.
- Mercado Shops: Online web stores for merchants who want their own site.
- Mercado Fondos: Money market option for those using MercadoPago.
- Mercado Credito: Facilitation of financing for those using MercadoPago.
The list will continue to grow, all in support of the company's over-arching mission.
Solid financials
Of course, such ambitions mean little if MercadoLibre can't execute on them. And while talent, time, and drive are all important, a company needs cash to get the job done as well. On that front, the company's financial position has improved markedly over the past five years.
Chart by author. Data source: SEC filings. Note that 2020 data is accurate to Sept. 30, 2020.
The stock has ballooned in the past few years. This has allowed management to raise money (see the blue line starting in 2018) in secondary offerings that can fund its ambitions. More importantly, free cash flow has gone from $133 million in 2018 to over $800 million in the past 12 months.
Skin in the game
Finally, I'm also heartened by the fact that this is a founder-led organization. Marcos Galperin started MercadoLibre in 1999 and still remains at the helm. Not only does he likely view the company's long-term success as emotionally vital, but he's financially incentivized to do well by shareholders: He owns 8% of shares outstanding. If we -- as shareholders -- lose money, so does he.
Not only that, his employees enjoy working there, too. Anonymous reviews on Glassdoor.com give Galperin a 96% approval rating, with the company garnering 4.4 stars (out of 5.0), and 94% saying they'd recommend working there to a friend.
Seem expensive?
But even with all of these reasons to own the stock, many may balk. Shares have quadrupled since last April alone -- and trade for over 100 times free cash flow.
That's where "buying in thirds" comes in. Take the total amount of money you'd ideally like to put in a stock like MercadoLibre, and divide it by three. Only invest that smaller sum right now. You can leave the rest to invest later. Perhaps you'll get better value points, but even if you don't, you'll be glad you had a little "skin in the game."
And lest you think these are empty words, MercadoLibre accounts for over 10% of my real-life holdings -- and I have no intention of selling anytime soon.
