MercadoLibre and Dutch Bros Have Fallen More Than 30% From Their Record Highs. Here's Why Both Are Worth Buying Now.

The S&P 500 is hitting new highs, but that doesn't mean every great stock is soaring this year. There are all kinds of reasons a top stock could move down in a strong bull market, and sometimes, that creates investing opportunities.

Consider MercadoLibre (NASDAQ: MELI) and Dutch Bros (NYSE: BROS). Both of these stocks have incredible long-term potential, but they're 37% and 49% off their highs, respectively. Here's why you should buy them on the dip.

Image source: Getty Images.

1. MercadoLibre: 37% off highs

MercadoLibre is a Latin American e-commerce superstar. It operates in 18 countries in the region, with a complete platform including logistics, media, and a payments business. Its payments and media businesses have actually become major growth drivers on their own, and the ecosystem puts MercadoLibre in an excellent position to benefit from the shift to digital in Latin America.

It's the largest e-commerce company in its region, and it's building what it expects to be the biggest digital bank in the area as well. It has the most comprehensive logistics program, with 77% of shipments (not chosen to be slow) delivered within 48 hours. Management sees the company's edge in its ecosystem, as artificial intelligence provides consumer recommendations and informs accurate digital ads, and customers on the platform can easily pay through the payments system. That even leads to more users buying insurance policies through the financial platform.

There are 670 million people in Latin America who make up MercadoLibre's addressable market, and the median age is a decade younger than in the U.S. and China. They are also highly connected digitally, even though they lag other regions in e-commerce and digital banking penetration.

MercadoLibre consistently reports high growth, including a 50% increase in revenue year over year in the second quarter, a 56% increase in total payment volume, and a 44% increase in gross merchandise volume.

The stock is down right now because profitability has declined for the past two quarters. Management says it needs to invest to build and grow more, but the market was disappointed.

As soon as profitability starts to increase, the price could go right back up, which is why now is the right time to buy.

2. Dutch Bros: 49% off highs

Dutch Bros is a young and growing coffee shop chain that has ambitious long-term expansion plans. It had 1,225 stores as of the end of the second quarter, and it's planning to nearly double that over the next three or four years, reaching 2,029 by 2029. Longer term, it plans to have 7,000 stores.

The customer reception demonstrates that the company should be able to meet these goals. Same-store stores increased for the past 13 quarters, and same-store transactions growth was positive for the past eight quarters. Revenue increased 32% year over year in the second quarter, fueled by 48 new stores and a 5.8% increase in same-store sales. Transactions increased 1.7%.

Image source: Dutch Bros.

While the company is concentrated on the West Coast, where it started out, it's now live in 28 states and growing. It opened two stores in Chicago this year that included its best opening day ever, and it's opening up along the East Coast as well, with demand in cities like Atlanta, Charlotte, and Tampa exceeding expectations.

Part of its expansion strategy includes acquiring smaller chains, which will help Dutch Bros reach its goals faster and drive revenue growth. The company recently rolled out a food menu to complement its custom beverages, which is another growth driver, and the move is generating increased engagement with loyal fans. Its innovation pipeline continues to turn out new products and merchandise that keep customers coming back, such as its new Myst energy refresher line and a series of branded sticker drops.

There are a number of reasons Dutch Bros stock is down right now. The market didn't like its guidance in August, and there are worries about the increasing cost of coffee beans. The company also ended its bid for a restaurant chain that would have added 65 stores to the portfolio.

Five years from now, Dutch Bros should be a lot bigger and still expanding, making its lower price a great opportunity to buy the stock on the dip.

Jennifer Saibil has positions in Dutch Bros and MercadoLibre. The Motley Fool has positions in and recommends Dutch Bros and MercadoLibre. The Motley Fool has a disclosure policy.