Growth stocks have had a major pullback since February 2021 thanks to decade-high inflation of 7.5%, which is above the Federal Reserve's 2% target. Goldman Sachs is expecting seven interest rate hikes in 2022 to curb this high inflation. Thus, growth stocks are looking very supressed and many are trading at extremely low valuations. Here are my top three large caps, which are starting to look appealing
Amazon
Amazon.com Inc. (AMZN, Financial) is the global leader in e-commerce and cloud computing (through Amazon Web Services). Investing $10,000 in 2008 would have made you a whopping $570,000 - this is a return of over 5,700%. However, it may not be too late for investors to profit as the company is going from strength to strength and recently had a price pullback.
Amazon is the dominant market leader in e-commerce, making up over 40% of online sales in its home market, according to a study by Emarketer. Despite being the "Everything Store," the company is just getting started in areas with low e-commerce penetration. For instance, areas such as food and beverages have minimal e-commerce penetration (3.7%) and thus offer a potential runway for growth.
The Prime membership ecosystem also continues to grow with over 200 million members globally. In the U.S., there are over 150 million Prime members that represent just under 50% of the population.
The stock is currently trading below the GF Value Line, which uses the stock's historical multiples, past financial performance and future earnings projections to determine a relative valuation. Thus, Amazon appears to be modestly undervalued currently.
Uber
Uber Technologies Inc. (UBER, Financial) is down over 50.5% from its highs in April 2021. The rideshare company has three main growth engines: the mobility business, the delivery business and the freight business.
Demand for Ubers rides is now starting to rebound and approach pre-pandemic levels. Trips during the latest quarter grew 23% year over year, bringing the total to 1.77 billion trips, or 19 million trips per day on average.
Mobility and delivery currently make up the vast majority of the company's gross bookings, which have grown from $59 billion in 2019 (majority rides) to $103 billion in 2021 (delivery and rides roughly equal).
The company may not be profitable now, but it has sold off many of its “moon shot,” money-losing tech ventures, with a plan to refocus on the core business model. The company has made a series of acquisitions to increase market share and allowed it to expand the freight business.
The GF Value Line suggests the stock is extremely undervalued, but beware there is also a value trap warning, so be sure to do thorough research before making a decision.
The stock may be down due to Uber's low-margin business. According to CEO Dara Khosrowshahi, the company makes approximately 50 cents per trip. Therefore, as we enter a high inflation environment, margins may get squeezed further. Regardless, there is no denying that Uber is trading at a low valuation relative to historic multiples.
MercadoLibre
MercadoLibre Inc. (MELI, Financial) is the e-commerce market leader in Latin America and has, therefore, been dubbed "The Amazon of Latin America."
According to Web Retailer, the company is the clear leader in Latin America with 667 million website visits per month, compared to just 169 million visits to Amazon.
The company's fintech and digital payments segment, Mercado Pago, is one of the most lucrative parts of the business. According to BIS, limited access to retail payment services and their high costs are significant challenges in Latin America.
According to its most recent earnings report, the company grew its revenue a meteoric 77% in 2021 to $7 billion, while profits soared up 244% to $441 million. MercadoLibre previously made a high gross margin of 75% and an operating margin of around 25%
According to the GF Value Line, the stock is significantly undervalued. The risks to the company include the volatile Latin American market, inflation and competition from the likes of Sea Ltd. (SE, Financial), of which its new Shoppee has gained a lot of traction. Having said that, MercadoLibre is still immensely dominant.
