Forget the AI Hype: 2 International "Wide Moat" Stocks You Can Buy Now and Hold Forever
Key Points
Expensive stocks in the United States should have investors looking abroad.
Nu Holdings operates a fast-growing bank in Latin America.
MercadoLibre has a sprawling e-commerce and financial services business, also in Latin America.
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With stocks soaring in the United States, it feels harder and harder to find quality companies trading at reasonable prices. In times like these, smart investors can look abroad for new, promising opportunities. Nu Holdings (NYSE: NU) and MercadoLibre (NASDAQ: MELI) are two such stocks that are dominating their respective sectors in Latin America, banking and e-commerce.
Here's why these "wide moat" stocks are for investors trying to buy high-quality stocks while also avoiding the artificial intelligence (AI) hype.
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1. Nu Holdings' banking model for the masses
With 135 million customers in Brazil, Mexico, and Colombia, Nu Bank has caught fire as the preferred mobile banking application in Latin America. It won the hearts and minds of everyday banking customers in Brazil with an easy-to-use mobile app, no frustrating fees, and access to lending products not available at legacy banks.
By building a customer base of over 100 million in Brazil through Nu Bank's credit cards and other lending products, Nu Holdings' revenue in the country has grown to an astonishing $12.3 billion over the last 12 months. Now, it is running the same playbook in Mexico, which now has 15 million active customers as of its latest update, and generated $950 million in revenue over the last 12 months. With an economy similar in size to Brazil's, there is no reason why Nu Bank cannot generate the same level of revenue in Mexico.
In the long term, Nu Holdings plans to expand into new markets in Latin America and the United States, where it believes it can provide banking services to underserved customers with income profiles similar to those of its Brazilian and Mexican customers. This should lead to rapid revenue growth over the next five years.
Nu's stock is down almost 32% from its high over the last year, bringing its stock to a price-to-earnings ratio (P/E) of 20. For a fast-growing company with a competitive advantage from its mobile-first strategy, stealing share from legacy banks with stodgy digital infrastructure and high overhead costs from physical banking branches, Nu Holdings is a fantastic high-quality stock to buy the dip on right now.
2. MercadoLibre's dominant e-commerce position
MercadoLibre is a company with a similar dominant position at the forefront of industry change in Latin America. It has a much more sprawling business than Nu Holdings, but its original idea was to build an online shopping platform similar to that of Amazon or eBay. Now, it operates in 18 countries across Latin America, offering e-commerce services, payments technology, and advertising, and is even moving into fully fledged banking for individuals and businesses, overlapping with Nu Bank.
The physical infrastructure MercadoLibre has built to deliver online orders in places like Argentina and Mexico at rapid speeds drives consistent growth as more people adopt online shopping. To further monetize these expensive infrastructure investments, MercadoLibre is rapidly growing its high-margin advertising revenue on the MercadoLibre marketplace and is pushing its credit card to entrench shoppers.
All of these successful businesses have driven phenomenal growth for MercadoLibre. Revenue has grown by 4,400% over the last 10 years, reaching $31.8 billion over the last 12 months.
Right now, MercadoLibre's stock has fallen 37% from its highs due to compression of its profit margins from up-front investments in its fulfillment network and credit card acquisition costs. However, this should not be a concern for MercadoLibre shareholders, as it will drive revenue growth and customer retention, which in turn will deliver a recovery in profit margins.
Like Amazon in North America, MercadoLibre plays the long game, and now you can buy its stock at a discounted price with a huge growth runway ahead.
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Brett Schafer has positions in MercadoLibre and Nu Holdings. The Motley Fool has positions in and recommends Amazon, MercadoLibre, Nu Holdings, and eBay. The Motley Fool has a disclosure policy.
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