3 Stocks I Bought Last Month
Key Points
MercadoLibre is growing faster than it has in years, even as its trailing earnings multiple nears a 10-year low.
Upbound offers a high yield and reasonable valuation for a business built for the new normal.
Dutch Bros is bucking the beverage retail malaise with its wildly popular concept.
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May was a pretty good month for investors. I still felt that last month offered good entry points for stocks trading well below their highs.
What did I buy? I purchased shares of MercadoLibre (NASDAQ: MELI), Upbound (NASDAQ: UPBD), and Dutch Bros (NYSE: BROS) in May.
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What attracted me to these three stocks? Let's go over the catalysts of each one. No stock is perfect, so let's also look at some risks.
Image source: Getty Images.
1. MercadoLibre
It was bound to happen. I've been following MercadoLibre since it went public 19 summers ago. I naturally wish I could have bought in sooner, but with shares of the Latin American e-commerce and fintech leader trading roughly 40% below last year's all-time highs, it felt like a good opportunity to make up for lost time.
MercadoLibre's stock is going through some near-term margin challenges. With its credit portfolio rising 87% in the latest quarter, there's a short-term pop in initial loan-loss provisions. As competitors try to eat into MercadoLibre's market dominance in Brazil by emphasizing free shipping, MercadoLibre has had to lower its minimum order for free delivery.
The result is that MercadoLibre's net income margin contracted 360 basis points to 4.7%. It's the company's worst net margin since late 2023.
The good news is that the business itself is booming. Revenue rose 49% -- or 46% on a foreign-exchange neutral basis -- in its latest quarter. This is MercadoLibre's strongest top-line growth since the spring of 2022. Growth is accelerating on the strength of its emerging credit and advertising offerings, but even its two core businesses are picking up the pace.
MercadoLibre's 84.1 million active buyers -- a 26% increase over the past year -- spent 42% more on the platform than they did through the first three months of last year. Its 82.9 million monthly fintech users 29%, but the total payment volume rose 52%. Audience growth is increasing, and so is engagement.
The near-term drags on the bottom line aren't a good look, but MercadoLibre is faring a lot better than its stock chart over the past year suggests. MercadoLibre is now trading at a rich 43 times trailing earnings. This may seem high, but it's surprisingly near a 10-year low for that valuation multiple.
2. Upbound
This company might not seem familiar, but you probably know its flagship retail concept. Upbound's Rent-A-Center is a leader in lease-to-own furniture, consumer electronics, and appliances.
It's not the only thing that Upbound does. It also operates Acima, a software platform that helps other merchants offer Upbound's lease-to-own purchase option. There's also Brigit, a popular, well-rated budgeting smartphone app that has become its fastest-growing business.
Upbound is an old-school retailer with a pair of high-tech growth vehicles. Critics will argue that lease-to-own businesses are predatory, but what is the savory alternative for lower-income renters who can't afford to outfit their homes with furniture, appliances, and computers to help them work or find work?
In the meantime, you have a company with growing revenue, a sustainable 8.6% yield, and a low earnings multiple. Upbound's full-year guidance calls for revenue of $4.7 billion to $4.95 billion and adjusted earnings per share of $4.00 to $4.35. At the midpoint of both ranges, you're talking about 1% to 2% growth on both ends of the income statement.
The stock is trading for just 4 times forward adjusted earnings. It does have a leveraged balance sheet, so there are risks there along with a potential spike in its lease charge-off rate if the economy sours.
3. Dutch Bros
Finally, we have Dutch Bros, a fast-growing player in the retail beverage market resonating with young consumers. Its small-box havens of mixed and blended specialty drinks are popular, even in the current climate where many popular food and beverage chains are struggling.
Revenue rose 31% in its latest quarter, fueled by brisk expansion and an 8.3% uptick in comps. This isn't a fluke. Comps have been positive for 19 years. Dutch Bros has 1,177 locations, and it expects to open at least 185 new units in 2026. The trend is undeniable, and even as fast-food chains and coffee shops embrace handcrafted beverages and dirty sodas, Dutch Bros remains the niche leader.
Dutch Bros is profitable, but with much of the money it's making going toward building out its empire and buying out early franchisees, this isn't a bottom-line story at this point in its growth cycle. It did boost its full-year guidance for revenue, comps, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Approaching two decades of store-level growth, it's hard to bet against this ascending concept.
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Rick Munarriz has positions in Dutch Bros, MercadoLibre, and Upbound Group. The Motley Fool has positions in and recommends Dutch Bros and MercadoLibre. The Motley Fool has a disclosure policy.
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