We recently compiled a list of the 7 Best E-commerce Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where MercadoLibre, Inc. (NASDAQ:MELI) stands against the other e-commerce stocks to buy according to hedge funds.
The Retail Debreif: Growing Consumer Confidence in the US
E-commerce is growing faster than expected and as new avenues of selling online open up, companies are bound to keep up with trends and innovative strategies. According to a report by Forbes, the e-commerce industry is expected to grow to a valuation of $7.9 trillion by 2027 from $6.3 trillion in 2024. In 2027, 23% of retail purchases are expected to be made online, up from 20.1% in 2024.
In the United States, low-income households, with a yearly income of $50,000 or less, happened to spend the most on online spending compared to other groups. On October 17, Reuters reported that retail sales in September increased, as gas prices fell, allowing consumers to spend elsewhere. Overall, the average consumer in the United States spent mostly on clothing, health and personal care stores, and miscellaneous items. Amid rising consumer confidence and spending, the Atlanta Fed raised its GDP estimates for Q3 to 3.4%, up from a previous guidance of 3.2%. Overall, retail sales grew by 0.4% last month.
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Chinese E-commerce Platforms: A Threat or Opportunity?
Chinese e-commerce stocks have been on the rise, despite uncertain macro-economic conditions in the country. As the Chinese government attempts to stimulate the economy, these companies may perform better than expected, meaning other global e-commerce stocks will have to ramp up their investments in sustainable growth strategies. On October 21, Reuters reported that the world’s largest luxury brands in France and Italy reported a decline in quarterly sales as the growing second-hand and grey market for luxury goods in China continues to expand, and demand for luxury brands falls. The second-hand luxury goods market is estimated to be valued at $57 billion, fueled by platforms such as DeWu, where used luxury products are sold at discounted prices. Reuters estimates that DeWu reported a 19% increase across its 48 brands during Q2 2024. Since China makes up 25% of the revenues in the retail sector, consumers shifting to local platforms may cause a hit to global commerce and retail companies.
On October 9, Reuters reported that amid fierce market competition online shopping has been increasing in Europe and other parts of the world. The online shopping market in Europe is expected to reach EUR 958 billion in 2024, up from EUR 887 billion in 2023, representing an increase of 8%, or 5% in inflation-adjusted terms. However, e-commerce experts in Europe share concerns over the growing popularity of cheap e-commerce platforms, especially Temu, increasing competition for local brands. On the flip side, Temu states that it believes in supporting local brands and has invited local merchants in the United Kingdom, Germany, France, Italy, and Spain to join the platform.
The e-commerce industry is rapidly changing and growing, thanks to technology, macroeconomic conditions, and geopolitics. Despite the turmoil, some stocks continue to outperform others. That said, let’s take a look at the 7 best e-commerce stocks to buy according to hedge funds.
Our Methodology
To compile the list of the 7 best e-commerce stocks to buy according to hedge funds, we looked at holdings of e-commerce ETFs and screened for Internet Retail companies on the Finviz stock screener. We sorted our screen by market cap and looked at the 20 largest e-commerce companies. We picked stocks that were the most widely held by institutional investors, as of Q2 2024. The list is in ascending order of the number of hedge fund holders for each stock.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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MercadoLibre, Inc. (NASDAQ:MELI)
Number of Hedge Fund Holders: 84
MercadoLibre, Inc. (NASDAQ:MELI) is an online marketplace headquartered in Uruguay. The company was founded in 1999 and is on track to become the largest e-commerce company in Latin America. Today, MercadoLibre, Inc. (NASDAQ:MELI) is present in 18 countries and has over 65 million buyers and 12 million sellers.
MercadoLibre, Inc. (NASDAQ:MELI) is one of the largest e-commerce companies in Latin America and reported gross merchandise value worth $45 billion in 2023. The company has grown its revenue at a compound annual growth rate of 28% between 2016 and 2023. During the second quarter of 2024, the company generated $12.6 billion in gross merchandise value, up by 20%, and sold nearly 421 million items, up by 29% year-over-year.
Unique active buyers reached 56.6 million during the second quarter of 2024, up from 47.6 million in the second quarter of 2023, the fastest growth since the second quarter of 2021. Brazil contributed most to this trend, with a growth rate of 22% year-over-year. MercadoLibre’s (NASDAQ:MELI) e-commerce infrastructure is stringent, allowing it to facilitate faster deliveries. In 2023, MercadoLibre delivered 1.38 billion items, and 76% of them were delivered within 48 hours in the last quarter of 2023.
Overall, MercadoLibre, Inc. (NASDAQ:MELI) has grown its revenue at a compound annual growth rate of 28% between 2016 and 2023. Its consistent performance and growing customer base are its economic moat. To align with its expansion strategy, the company expects penetration to increase in growth markets such as Latin America, China, the United States, and the United Kingdom.
Lakehouse Capital’s Lakehouse Global Growth Fund stated the following regarding MercadoLibre, Inc. (NASDAQ:MELI) in its May 2024 investor letter:
“The Fund’s largest position, Buenos Aires based e-commerce leader MercadoLibre, Inc. (NASDAQ:MELI), reported a robust result that once again came in ahead of analyst expectations. Net revenue grew 30% year-on-year in U.S. dollar terms to US$4.0 billion while operating margins came in at 12.0%, providing a healthy balance of growth and profitability. Its marketplace business proved resilient, with strength in Brazil and Mexico more than enough to offset weakness in Argentina, which contacted by roughly a third due to weak macroeconomic conditions exacerbated by the 50%-plus devaluation of the Argentine Peso in December 2023. Whilst the economic situation in Argentia remains severe, we are comfortable with the risk as not only has management proved very adept at handling the challenges to date, but post the devaluation, the risk is meaningfully reduced as Argentina now only contributes 13% of the company’s total operating income. Overall, gross merchandise value still grew at 20% year-on-year to $11.4 billion and we continue to see significant opportunities ahead given the relatively nascent penetration of e-commerce in the region.”
Overall MELI ranks 5th among the 7 best e-commerce stocks to buy according to hedge funds. While we acknowledge the potential MELI as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MELI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.