2 growth stocks to buy before the next bull market


It is important to invest money regularly, because no one knows how the stock market will behave in a given year, let alone a specific day or week. Stocks rise and fall in response to countless variables, but investing on a fixed schedule can help normalize inherent market volatility. This principle is known as average purchase price.

With that in mind, whether the next bull market starts tomorrow or three years from now, now seems like a good time to start building positions in MercadoLibre (MELI -9.36%) and DigitalOcean (DOCN -4.36%).

Here’s what you need to know.

1. MercadoLibre

MercadoLibre bills itself as the largest e-commerce and payment ecosystem in Latin America, a region poised for rapid economic growth. This success stems from its pioneering status and strong offering of value-added services, such as fulfillment and logistics, business and consumer lending, and digital advertising.

A little like Amazon, MercadoLibre simplifies commerce for sellers, forming the basis for a resilient network effect. Each new seller creates value for each buyer by bringing more inventory to market, and each new buyer creates value for each seller by bringing more buying power to the platform. This virtuous circle has fueled impressive financial results. Revenue soared 69% to $7.9 billion in the past year, and the company posted GAAP earnings of $3.67 per diluted share, compared with a loss of $0.31 per diluted share the previous year.

These results are undoubtedly solid, but investors need to dig a little deeper to understand why MercadoLibre is well positioned to maintain this momentum. In the first quarter, its managed logistics network handled 91% of shipping volume, up from 80% the year before. Its credit portfolio quadrupled in value and total payment volume soared 72% to $25.3 billion. In other words, merchants and consumers are adopting more value-added services, making its market and fintech platform stickier. This means switching costs increase as each additional service makes it harder to break ties with MercadoLibre.

In the future, the company still has plenty of room for growth. In its five largest geographies, e-commerce spending will reach $210 billion by 2025, and digital payments volume will reach $360 billion by 2026, according to Statista. As a market leader, MercadoLibre stands to benefit greatly from these trends. That’s why this monster growth stock belongs in your portfolio.

2. Digital Ocean

DigitalOcean democratizes cloud computing. Sellers love Amazon offer a lot of high-end services, but these products are designed for large enterprises – the type of organizations with extensive IT support. Unfortunately, 43% of small and medium-sized businesses (SMBs) don’t have full-time IT support, making cloud adoption difficult.

With this in mind, DigitalOcean aims to simplify cloud computing with an intuitive user interface and 24/7 customer and technical support. These features make it possible to deploy infrastructure and platform services in minutes, without any formal training, meaning SMBs can quickly build and scale web and mobile applications.

Sure, DigitalOcean’s portfolio isn’t nearly as strong as Amazon’s, but its products cater to an overlooked niche in the market. Also, rivals are unlikely to target this niche, simply because it wouldn’t be worth it. The average DigitalOcean customer only spent $69 last year, which wouldn’t affect Amazon’s revenue.

However, DigitalOcean is a much smaller company and its value proposition for SMEs has led to strong financial results. Its personalized base jumped 6% to 623,000 over the past year, and the average customer spent 17% more, demonstrating the rigidity of its platform. In turn, revenue soared 36% to $462 million, and free cash flow moved into positive territory, reaching $33 million, from a loss of $35 million the previous year.

DigitalOcean is bringing new products to market quickly, which should help the company maintain momentum. For example, it recently introduced DigitalOcean Functions, a serverless platform that allows developers to write code and scale applications without worrying about backend infrastructure. The company has also made a number of add-ons available through the DigitalOcean Marketplace. Add-ons are software products that bring features such as monitoring, security, and automatic backups to DigitalOcean’s cloud platform.

Looking ahead, the company pegs its addressable market at $145 billion by 2025. That leaves a long streak for growth, and that’s why this stock is a smart buy ahead of the next bull market.


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