MercadoLibre is the dominant e-commerce marketplace in Latin America

The Motley Fool’s Take

The growth of global e-commerce is a megatrend worth investing in. In Latin America, one company dominates the e-commerce market: MercadoLibre.

MercadoLibre is like eBay and PayPal rolled into one, except it’s growing much faster. It operates a marketplace business (Mercado Libre), provides logistics services to vendors (Mercado Envoys), provides loans to merchants (Mercado Credito), and has a fast-growing digital payments business (Mercado Pago). Revenue grew 74% year-over-year in the fourth quarter, down from the triple-digit percentages it achieved in 2020, but with plenty of room to grow.

So far, Mercado Pago has 28 million users in Brazil and great growth potential. And recently, MercadoLibre started offering a cryptocurrency trading tool, which may drive more engagement with the app.

On the company’s fourth-quarter earnings call, CFO Pedro Arnt expressed optimism: “Even with physical stores reopening, customers in Latin America have embraced online shopping, paving the way for further growth through long term in the region.

The recent market sell-off in technology sector and growth stocks has given investors the opportunity to buy MercadoLibre at a relatively cheap valuation: a recent price-to-sales ratio of 8.2, down from 25 more than a year ago. (The Motley Fool owns shares and has recommended MercadoLibre.)

ask the fool

From CH in Saginaw, Michigan: If a company pays more dividends than it makes in earnings, should I stay away from it?

The Fool replies: Not necessarily, but digging a little deeper into the company is a good idea. What he has noted is known as a company’s “payout rate”: the sum of its annual dividends per share divided by its earnings per share for the year. A ratio below 1 (100%) means the company has enough earnings to cover its dividend obligations, and a much lower ratio generally reflects a lot of room for future dividend growth.

On the other hand, a ratio above 100% reflects that a company is paying more dividends than it is generating in net income. That’s not necessarily a bad thing, if the company has enough cash on hand to handle it, and if it’s only due to a temporary problem, such as, perhaps, a supply chain problem. (If the company faces long-term problems, it may end up reducing, suspending, or eliminating its dividend.) A high pay rate warrants a closer look at what’s going on in the company.

From DK in Keene, NH: Apparently my mutual fund is closed to new investors. Should I be worry?

The Fool replies: No. Mutual funds will occasionally close to new investors for a while, if their managers find themselves with more shareholder dollars to invest than good ideas about where to invest them. This way, they don’t have to invest shareholders’ money in second-tier or third-tier investment ideas. (Some funds will enact a “soft close,” meaning they strictly limit new investment, usually to existing shareholders.)

school for fools

If you want to manage your finances more effectively and be a better investor, there are many books that can help you. Here are a few to check out at your local library or bookstore:

  • I’ll Teach You To Be Rich, Second Edition: Without Guilt. There are no excuses. No BS. Just a 6 week program that works by Ramit Sethi (Worker, $16). This well-organized set of steps can put you in a much better financial position and improve your financial future.
  • The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness by Morgan Housel (Harriman House, $19). This book offers insight into how (and why) people make good and bad financial decisions.
  • The One Page Financial Plan: An Easy Way to Be Smart With Your Money by Carl Richards (Portfolio, $25). Having a plan for how you will manage your money and reach your goals is essential.
  • The Little Book of Value Investing by Christopher Browne (Wiley, $25). This is Warren Buffett’s style of investing, and it’s clearly effective. The book can help you find and evaluate promising undervalued stocks.
  • Excellent By Choice: Uncertainty, Chaos, and Luck: Why Some Thrive Despite It All by Jim Collins and Morten T. Hansen (Harper Business, $24). To be successful in investing, it helps to understand what makes various businesses successful or unsuccessful.
  • The Little Book of Behavioral Investing: How to Not Be Your Own Worst Enemy by James Montier (Wiley, $25). Behavioral finance is a fascinating topic and one worth reading to help you minimize financial mistakes.
  • The Motley Fool Investment Guide: Third Edition: How the Fools Beat the Wise Men on Wall Street and How You Can Too by David and Tom Gardner (Simon & Schuster, $22). The Motley Fool’s first book, now updated, offers guidance on evaluating companies and investing in stocks and/or index funds.

my dumbest investment

From ES, online: Years ago, I was a total newbie and frequently searched online for the “best stocks right now.” I ended up finding a little action. In hindsight I now see that I was being artificially pumped (that’s how I found it in the first place, someone was posting ads about it). I foolishly bought $1,000 worth of stock and sure enough tripled my money in just a few days. However, I did not sell; again, he was a total novice. My loss is close to 100%.

I learned my lesson: I’ll never fall for another pump and dump scheme like that again, and if I end up riding a fake wave, I know to jump in right away. It was a hard lesson to learn, but a great long-term learning experience.

The Fool replies: Don’t be too hard on yourself: even the best investors make some regrettable moves, and new investors can make a lot. That’s why most investors, both new and experienced, can benefit from reading and learning more about investing.

As you already know, many penny stocks (those trading at around $5 a share or less) can be manipulated in “pump and dump” schemes. That’s where scammers hype stocks to entice new investors to buy, driving up share prices, only to then sell their own shares at higher prices, driving share prices down, burning out naive investors.

Who I am?

My roots go back to California in 1980, when I was launched as an applied molecular genetics company. Initial efforts included trying to raise chickens faster, and an early success was the cloning of a gene that led to my successful drug Epogen, which treats anemia. Today, with a recent market value of $135 billion, I am a biotech powerhouse, primarily focused on cardiovascular disease, oncology, bone health, neuroscience, nephrology, and inflammation. My top sellers include Aranesp, Enbrel, Kyprolis, Neulasta, Nplate, Otezla, Prolia, Repatha, and Xgeva. I am one of the 30 companies in the Dow Jones Industrial Average. Who I am?

Don’t you remember the question from last week? Find it here.

Last week’s trivia answer: J&J snacks

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