2 tech stocks that could make you a millionaire

There are many different approaches to investing and different goals. Some investors are looking for passive income, while others are saving for a rainy day. Many want to retire with at least $1 million in their portfolio for a comfortable retirement.

If you start early enough, add funds consistently, and maintain for many years, the million dollar goal is achievable. It also helps pick great stocks. MercadoLibre (MELI -0.58%) and Lemonade (LMND 1.10%) they are two excellent candidates.

1. MercadoLibre: The King of eCommerce in Latin America

MercadoLibre is one of the most popular tech stocks. It has a dominant position in two exceptional growth industries and continues to improve.

The main activity of the company is e-commerce. It serves 18 Latin American countries with a robust e-commerce platform to rival Amazon in this region. MercadoLibre has a strong logistics business that delivers products to shoppers quickly and efficiently, and recently launched a subscription program called Meli+.

One of the ways that MercadoLibre continues to improve its services is by attracting more suppliers to join its network, but it does much more. It allows members to choose a day of the week to get all their purchases, resulting in lower costs.

It also just opened its first fulfillment center in Texas to serve the Mexican market. This could lead to further US penetration and is something to watch. Taking a page from Amazon’s playbook, the company offers more brand names and now has personalized gift lists and coupons.

Gross merchandise volume grew 20% year-over-year (83% on a currency-neutral basis) in the second quarter, and as the company continues to deliver higher-value services, expect to maintain strong growth.

But MercadoLibre is much more than e-commerce these days. It operates a high-growth fintech segment that includes digital payments and a host of other financial services, all within its app. Monthly active users grew 37% year-over-year in the second quarter, and total payment volume grew 36% (86% on a currency-neutral basis).

The financial side of things is extremely profitable, resulting in strong revenue for the entire company. Assets under management rose 86% to $6.6 billion in the quarter, and net interest margin (after losses) was 31.1%. Total net income doubled year-over-year in the second quarter, with a margin of 10.5%.

The e-commerce market is still under-penetrated in Latin America, and with its two core businesses, MercadoLibre has massive potential.

2. Lemonade: The disruptive insurance model

Lemonade is an AI-powered insurance company that aims to change the way people buy insurance. So far, it has been tremendously successful, at least in getting customers to choose its products and growing its top line. Premiums in force rose 22% year-over-year in the second quarter, with revenue up 17%.

With the explosion of AI capabilities, it’s only natural that new insurance companies enter the industry with a better product.

Which is a better product? Lemonade is almost entirely digital, adding customers and paying claims with chatbots. It uses data analytics and machine learning to quickly and accurately price policies and pay claims. It’s fast and simple, with approvals often in seconds and requiring little human intervention.

So why don’t legacy companies do this? To some extent, they are. But they are huge companies with layers of built-in infrastructure; it is not so simple to do a complete overhaul.

Lemonade, on the other hand, was built on a digital foundation, and AI is part of everything it does. It’s agile and modern, and clicking on a chatbot to get a policy price or make a claim is much easier to use than making a phone call to an agent.

Where Lemonade has been less successful so far is making a profit, but there have been improvements. In particular, it reported a sharp drop in the loss rate in the second quarter. This is a positive direction for loss ratios, which measure how much an insurance company pays out in claims.

The loss rate was higher than shareholders want to see, but even if the improvements were not linear, it was headed in the right direction.

The company also continues to report serious net losses. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) improved 18 percent in the quarter, but was still a loss, and net loss narrowed 15 percent to $57 million. That’s another great loss.

Lemonade has disappointed investors, who believe it is taking too long to demonstrate that its bottom line will truly be an improvement over legacy insurance companies. But it gets there.

Lemonade stocks are definitely not for the risk-aware investor. It’s still down 91% from its all-time highs, and the market has really lost its taste for it. However, the market is fickle and could change on a dime (more likely a few million in net income).

As soon as Lemonade starts to demonstrate better value, it should start going up again. Of course, this takes a long time. But over the long term, the stock could be a great asset for a growth portfolio. And at this cheap price, risk-tolerant investors may want to take a small position.