Investors often act with the intent of never selling. Warren Buffett has often said that his favorite holding period is "forever," and holding some stocks for years or decades has often paid off for investors.
Unfortunately, changing business conditions or management teams can make selling a stock the only wise choice, but one cannot truly make a promise to "never" sell.
Nonetheless, I own stocks I cannot envision myself selling, and Shopify (SHOP 1.03%) and MercadoLibre (MELI 2.23%) fit that description. Here's why.
Shopify
CEO Toby Lütke has stated an intent to build a "100-year company" when it comes to Shopify, and judging by its growing competitive advantage, it has a high probability of making that goal.
As most investors know, Shopify offers a platform for merchants to operate an e-commerce site. It has developed an edge in this otherwise challenging business by building a speedy, highly customizable site that merchants can build and operate without coding knowledge.
Moreover, it has built an ecosystem that addresses most of the ancillary needs of online merchants. Managing inventory, handling payments, running email marketing campaigns, and raising capital are among Shopify's offerings for its customers.
Currently, Shopify stock sells at about a 65% discount to its 2021 high. Admittedly, the pandemic-driven bull market likely drove that stock price. Also, its attempt to build a logistics business led to a return to losses.
However, the business continued to grow even as investors soured on the stock in the subsequent bear market. Revenue grew by 26% in 2023 and 21% in 2022. Additionally, the sale of the low-margin logistics business has dramatically improved Shopify's financials, leading to profits when not counting one-time charges related to that spinoff.
For these reasons, the stock should be judged by the underlying business performance. Since reaching its multiyear low in October 2022, the stock has risen by nearly 170%.
Furthermore, the declines and growing revenues have taken the price-to-sales (P/S) ratio to 11, a level close to multiyear lows for the sales multiple. That is arguably an attractive valuation for buyers as Shopify works to attract more customers and fulfill its vision as a 100-year company.
MercadoLibre
MercadoLibre is a "never sell" stock because of its anti-fragility. As investors know, regulatory challenges, high inflation, and political turmoil often define the business environment in Latin America. However, instead of hampering MercadoLibre, the company has often thrived because of such challenges.
For example, since a large percentage of Latin Americans lack a bank account or credit card, the company founded Mercado Pago to offer payment products. This business provided products that allowed cash-based customers to shop online. It was so successful that it now serves people and businesses not shopping on its e-commerce site.
The same goes for Mercado Envios, the segment that provides storage, order fulfillment, and shipping services to its customers. Thanks to Mercado Envios, same-day and next-day shipping has become available in some of its markets. This and other MercadoLibre ventures function separately and as a part of the company to give it a competitive advantage in its various businesses.
Amid these synergies, its revenue has continued to rise even as its stock rose and fell through the last bull and bear markets. Revenue grew by 49% in 2022 and 37% in 2023.
Moreover, despite the stock growing 87-fold from its IPO price in 2007, it is unlikely to stop moving higher. Americas Market Intelligence forecasts a compound annual growth rate of 23% for Latin American e-commerce through 2026, and revenue growth indicates that MercadoLibre will capture a higher-than-average percentage of that growth.
That level of success may partially explain why its P/S ratio of 5 is higher than that of fellow e-commerce titans Amazon or Sea Limited, which both sell for 3 times sales. Nonetheless, with its sales multiple near multiyear lows, it is likely an excellent time to take advantage of the growing opportunity in this stock.
