3 no-brainer stocks to buy if the market sell-off continues

A market sell-off never feels good, but the smartest investors know that it also presents an opportunity. After you get over your initial feelings of apprehension, your next move should be to start looking for bargains.

If the market continues to decline in the coming weeks and months, Costco Wholesale (COST 0.14%), MercadoLibre (MELI 0.76%)and Shopify (STORE 2.33%) there are three stocks to watch closely. They may seem expensive right now, but if they drop, be ready to pounce.

1. The king of the storage model

If you’re one of the 134 million cardholders who shop at Costco Wholesale, you’ve probably been sold on the warehouse giant’s low prices and service. More and more shoppers continue to jump on the Costco bandwagon, leading to higher sales and profits despite inflation.

Membership grew 7.8% year-over-year in the third quarter of fiscal 2024 (ended May 12), and fee income rose 7.6%. Sales rose 9.1% in the quarter, driven by a 6.6% rise in comparable sales (comps). Earnings per share (EPS) also rose 29% to $3.78.

The retailer’s strong momentum extended into the current quarter. Costco offers monthly updates for certain metrics, and sales rose 7.1% year-over-year in July, with a 5.2% increase comps. E-commerce has grown rapidly for the company, with sales from this channel up 20% last month.

While Costco has seen some pressure from customers holding back on buying larger, more expensive items, shoppers still flock to its warehouse clubs to get the most out of their memberships. That’s why traffic grew 6.1% in the quarter, while the average ticket was roughly flat.

The company enjoyed positive media coverage when it announced a special dividend of $15 per share. And more recently, it increased its membership fee from $60 to $65. Management delayed that price increase while shoppers grappled with inflation, but the company believes it can deliver greater value to members by driving revenue growth into improving business.

The one factor that usually holds investors back is Costco’s valuation. Its shares trade at a premium of 53 times trailing 12-month earnings. If Costco gets dragged down by a broad market selloff, the stock will be undeniably attractive.

2. Fueling e-commerce in Latin America

MercadoLibre is a global leader in e-commerce, but its focus on Latin America means you may never have heard of it. Serving 18 countries with an online business similar to Amazonand also offers popular fintech services to complement its e-commerce business.

Although it just celebrated 25 years in business, MercadoLibre continues to grow as a much smaller and younger business. It benefits from operating in a huge market that is still under-penetrated in e-commerce. And after years spent building a large fulfillment network, the company can deliver products to buyers quickly and at low cost.

Gross merchandise volume (GMV) grew at a staggering 28% compound annual growth rate since 2016 and grew 20% year-over-year, or 83% on a currency-neutral basis, in second trimester. Engagement increases with more active shoppers, more shoppers buying from different categories, and higher shopper frequency.

The fintech business is growing even faster with total payment volume (TPV) up 36% (86% currency neutral) in the last quarter. MercadoLibre continues to roll out new services as it adds customers and sales. This creates more opportunities for cross-buying and engagement. One of its newest projects is opening a digital bank in Mexico, where it already has a significant presence in the field of digital payments and plans to become the largest digital bank in the country.

MercadoLibre is in high growth mode and looks like a strong buy even at the current price. Shares have held relatively steady through recent volatility, but any pullback will be an opportunity investors shouldn’t miss.

3. Driving the e-commerce revolution

Shopify is the name behind many online stores, providing the infrastructure for its merchant customers to take advantage of the long-term growth of e-commerce. However, it has expanded from providing full-service e-commerce stores to offering solutions and packages for companies of all sizes and is making inroads with large enterprise customers. As e-commerce only increases its share of total retail sales, Shopify is poised to maintain its impressive momentum.

But the company has spent the past two years recovering from mistakes made during the pandemic. Like many other businesses that expanded aggressively to meet rising demand in the early months of the global crisis, it had to scale back and focus on profitability once its pandemic-era growth proved unsustainable.

Shopify’s latest earnings report hints at its continued progress. It just reported phenomenal second-quarter results that beat expectations across the board. Revenue was up 21% year over year and GMV was up 22%.

Profitability measures were also outstanding. Gross margin expanded year-over-year from 49.3% to 51.1%, free cash flow increased from $97 million to $333 million, and operating income was $271 million as a result of to a loss of $1.6 billion in the year-ago quarter (resulting from the sale of the logistics business). ).

The stock trades at a premium valuation of nearly 12 times trailing 12-month sales and 52 times forward earnings. While Shopify is already a high-growth stock, it will be an easy buy if the stock is dragged down by a broad market decline.