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History Says the Stock Market Will Soar: 2 Top-Pick Growth Stocks to Buy Now and Hold Long Term

Motley Fool - Tue Feb 20, 3:45AM CST

The S&P 500 goes up in some years and down in others. Historically, the odds of a positive return in any given year have been about 75%. But the probability improves as the time horizon lengthens. Indeed, the S&P 500 returned 12.6% annually over the last decade, and investors can expect similar results (plus or minus a few points) over the next decade.

In short, history says the stock market will soar in the long run, which means investors can always find buying opportunities. Currently, Uber Technologies(NYSE: UBER) is a top pick at JPMorgan Chase, and MercadoLibre(NASDAQ: MELI) is a top pick at Morgan Stanley. Like the broader market, the stocks may go up or down in any given year, but both companies are well positioned to create value for patient shareholders.

Here's why.

1. Uber Technologies

Uber breaks its business into three segments. The mobility segment lets consumers access ridesharing services. The delivery segment lets consumers access food and retail delivery services. And the freight segment connects shippers with carriers. Uber is the global leader in ridesharing and food delivery, according to JPMorgan.

Uber benefits from a powerful network effect and cross-platform synergies. Its mobility platform becomes increasingly attractive to riders and drivers as the ridesharing ecosystem expands. Similarly, its delivery platform becomes increasingly attractive to consumers, drivers, and restaurants as its delivery ecosystem expands.

Additionally, Uber is leaning into synergies between its platforms by building cross-promotion paths, meaning the company is using the mobile platform to drive delivery adoption and vice versa. That strategy reduces acquisition costs and boosts engagement.

For instance, 31% of first delivery trips come from the mobility app and 22% of first mobility trips come from the delivery app. The ecosystems are stickier when consumers participate in both, and cross-platform participation among monthly consumers increased 13 percentage points over the last three years.

Uber reported fourth-quarter financial results that beat expectations on the top and bottom lines. Revenue increased 15% to $9.9 billion on particularly strong growth in mobility and delivery, offset by a decline in freight revenue. Meanwhile, generally accepted accounting principles (GAAP) net income soared 140% to $1.4 billion.

Going forward, the ridesharing services market is forecast to grow at 16% annually through 2030, and the online food delivery services market is projected to grow at 19% annually during the same period. That gives Uber a good shot at low-teens revenue growth through the end of the decade. In that context, its current valuation of 4.4 times sales appears reasonable, despite being a slight premium to the three-year average of 3.9 times sales.

Long-term investors should feel comfortable adding a few shares of Uber stock to their portfolios at the current price.

2. MercadoLibre

MercadoLibre is aptly called the Amazon of Latin America due to its strong presence in the domestic e-commerce market. MercadoLibre operates the leading online marketplace in the region as measured by monthly visitors and sales, and it has steadily gained market share for the last three years. That scale alone is a formidable advantage, as it creates a network effect that engages more buyers and sellers over time.

However, MercadoLibre has fortified its leadership in e-commerce with adjacent services that make its marketplace even more attractive, while creating additional revenue streams. The company offers logistics services through Mercado Envíos, credit products through Mercado Crédito, payment processing through Mercado Pago, and advertising through Mercado Ads. By further incentivizing merchants to use the marketplace, those adjacencies add momentum to the network effect.

MercadoLibre reported another round of fantastic financial results in the third quarter. Revenue increased 42% to $3.4 billion on strong growth in the commerce and fintech ecosystems. MercadoLibre also reported its sixth consecutive quarter of 70%-plus growth in advertising revenue. Meanwhile, GAAP net income soared 178% to $359 million. Rapid bottom-line growth was due to better credit quality (meaning the company set aside less money to account for bad debt) and higher interest income from digital wallet balances.

Going forward, MercadoLibre's three primary geographies (Argentina, Brazil, and Mexico) are forecast to rank among the five fastest-growing e-commerce and advertising markets in the world through 2027. And strong growth in online retail hints at strong growth in digital financial services. Wall Street believes those tailwinds will support 24% annual sales growth over the next five years.

In that context, MercadoLibre's current valuation of 6.9 times sales looks reasonable. However, investors should be aware of two risks. First, Mexican regulators recently expressed concern about MercadoLibre's massive e-commerce market share. But the regulators proposed mild fixes, and no investigation into monopolistic tactics has been launched, according to Reuters.

Second, the Argentine economy is in a state of upheaval, with annual inflation exceeding 140%. The devaluation of the Argentine currency is a direct headwind to MercadoLibre's revenue growth. That said, the company has achieved robust growth throughout 2023 in spite of that economic turbulence, and World Bank expects Argentina to return to economic growth in 2024.

Patient investors comfortable with those risks should buy a small position in this growth stock today.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions in Amazon and MercadoLibre. The Motley Fool has positions in and recommends Amazon, JPMorgan Chase, MercadoLibre, and Uber Technologies. The Motley Fool has a disclosure policy.

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