Ticker Reports for October 10th
MercadoLibre Targets Double-Digit Upside with Argentina Boom
While the world of e-commerce in the United States and Europe is dominated by Amazon.com Inc. (NASDAQ: AMZN) and arguably shared with Chinese giant Alibaba Group (NYSE: BABA), a new Latin American territory has been taken over by the region’s leading platform instead, with a particular interest in Argentina’s new breakout.
MercadoLibre Inc. (NASDAQ: MELI) dominates most of Latin American e-commerce demand. While developing economies like Brazil and Colombia don’t have the type of swings that could be seen elsewhere, Argentina’s new administration through Javier Milei offers a new wave of above-average growth for investors to take advantage of with the right exposure.
This exposure might be found in shares of MercadoLibre, as the company recently announced satisfying new data coming out of their Argentinian division, showing that new consumer discretionary trends are overtaking the previous demand once primarily focused on consumer staples products instead. What follows could be a double-digit upside in the stock, a fact that Wall Street has gotten behind recently.
The Key Drivers Fueling Bullish Sentiment for MercadoLibre Stock
Starting with the simplest and most obvious gauge, price action, MercadoLibre now trades at 96% of its 52-week high, showing investors bullish momentum in favor of the company and its recent developments. However, the reason to consider taking a second look at this company goes beyond the stock price.
Investors can gain further insights by checking with Wall Street and assessing how analysts feel about MercadoLibre stock to justify the recent price action. Valuations and price targets are a good place to start, and the consensus is now set at $2,246, calling for a net upside of just under 10% from today's price.
However, there are those willing to stand out from the pack and give this stock a higher perceived valuation. Those at Cantor Fitzgerald now see MercadoLibre stock going as high as $2,530 for a net potential upside of as much as 23.6% from today's price, not to mention a new 52-week high to keep the momentum going until the year's end.
Future prospects and recent momentum for MercadoLibre stock have helped convince institutional buyers to consider allocating capital to the stock. As of August 2024, Legal & General and the Canada Pension Plan Investment Board have boosted their holdings in MercadoLibre stock by a respective 3.6% and 12.1%.
These recent additions brought their investments up to $531.8 and $424.75 million each as of today, showing investors further bullish sentiment coming from other Wall Street participants. This is something to keep in mind moving forward, as well as other recent catalysts.
MercadoLibre's Earnings Are Strong and Point to Even Greater Growth
As of the most recent quarterly earnings results for MercadoLibre, investors can note a few of the key performance indicators (KPIs) in the company in the latest press release. Starting with revenues, the company reported $5.1 billion, a significant 42% jump over the past 12 months.
This rise is driven by a 20% bump in gross merchandise volume, which reached a high of $12.6 billion. Monthly active users are the engine of these growth figures. MercadoLibre saw 52 million users this quarter compared to only 38 million for the same quarter last year.
Out of all the regions in Latin America that MercadoLibre operates in, Argentina seemed to be the strongest one, reporting up to 252% annual growth in gross merchandise volume to lead significantly above other comparable segments like Brazil and Mexico.
Despite already delivering strong quarterly numbers, the company's Argentina segment is leaving investors with fresh evidence from the country. According to this Bloomberg report, MercadoLibre's Argentina business saw a record 20 million products sold.
This record volume represented up to $916 million worth of commerce, but the type of products sold gives investors an additional—and arguably more important—trend to consider for the next quarter. These products were consumer electronics like laptops and cell phones, driving away market share from necessary products like food.
Expecting to see MercadoLibre stock outperform some of its peers in the retail sector, markets are now willing to overpay for exposure to the company's future earnings, as investors can see from the stock's price-to-book (P/B) ratio today. While the retail sector's average valuation is 4.8x P/B, MercadoLibre trades at a significant premium of 33.7x today.
China's Secret 'Seizure' Of US Farmland Could Destroy The Dollar
The media, of course, won't touch this explosive story…
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Domino's Pizza Stock Delivers: A Hot Buy for Growth Investors
Domino’s Pizza (NYSE: DPZ) continues to face challenges but is navigating the conditions well. The Q3 results show that the Hungry for MORE strategy continues to pay off, setting the business up for accelerating growth and leveraging bottom-line results when macroeconomic conditions improve for restaurant stocks.
Due to falling interest rates, that may begin as early as the second calendar quarter of 2025. The FOMC has already cut by 50 basis points and may cut by another 100 before mid-year 2025, along with deep cuts from other G-7 central banks that will reinvigorate economic activity. Until then, Domino’s store count growth, deepening penetration of existing markets, cash flow, and capital return will drive shareholder value.
Domino’s Sustains Margin, Grows Free Cash Flow in Q3
Domino’s Q3 results are mixed compared to analysts' expectations, with revenue falling short of the consensus and earnings above. The critical takeaways are that the revenue miss is slim at 180 basis points and offset by top-line growth, improved operating leverage, and solid outperformance on the bottom line.
Revenue grew by 4.9% on a global, FX-neutral gain of 5.1%. Growth was even across the U.S. and International segments; however, comp gains and store count increases varied from region to region. U.S. comps came in at 3.0%, aided by increased advertising expenses, while International comps were light at 0.8%. The net new store count increase of 72 helped drive the growth, leaving the total store count up nearly 4% at the quarter’s end.
Margin news was mixed, with margin contracting compared to last year but far less than feared. The net result is $4.19 in GAAP earnings, which are up a penny compared to last year with the aid of share repurchases. The critical detail is that cash flow and free cash flow improved and helped sustain the capital return and balance sheet, and improvement is expected to continue sequentially.
Domino’s capital return includes a dividend worth roughly 1.5%, with shares at a long-term low and share buybacks. The buybacks were nearly $200 million in Q3, reducing the average count by 1%. Because of the remaining authorization, cash flow, and balance sheet strength, repurchases are expected to continue robustly through year-end and in 2025.
Better-Than-Feared Guidance Puts a Bottom in Domino’s Price Action
Domino’s guidance is also mixed, but the takeaway is bullish for the market. The revenue target for 2024 was trimmed by 100 basis points to an easily reachable 6%, while the earnings forecast was maintained.
Earnings are expected to grow by 8%, aided by another 4% increase in store counts, with similar expectations for 2025, sufficient to sustain capital returns and balance sheet improvements over the long term. If the relaunch of the Emergency Pizza deal for loyalty members goes as expected, the forecasts for 2025 are likely low.
Analysts have begun lowering their price targets for Domino’s stock but continue to see a 25% upside and show a high conviction in the target. The first revisions are from BMO Capital and Baird, which reduced their stock price targets to $510 and $535, both above the consensus of $505 with an average target of $522.5. The firms maintained their Outperform ratings; a move to $522.5 would align the market with the 2024 highs.
Investors Buy the Dip in Domino’s Pizza
Domino’s Pizza's share price fell nearly 3% following the earnings release, but the move triggered buying. The market quickly reversed, adding more than 2% at the high, confirming support at a critical level and signaling a high probability of reversing. The move is accompanied by above-average volume and bullish crossovers in the indicators that indicate a shift in market dynamics and a market with ample room to run higher. The critical resistance point is near $445, about 5.5% above the October lows, and may be reached before the end of the quarter.
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3 Small-Cap Stocks Ready to Deliver Significant Growth
Small-cap stocks faced a challenging environment for the last several years as inflation and high interest rates dampened lending opportunities. These companies—which are often in the early stages of development and lack stability—rely heavily on debt to fuel their growth.
Fortunately for the small-cap space, the Federal Reserve's September rate cut of 50 basis points is a welcome relief that should make borrowing more accessible. The fact that the Fed has signaled that additional rate cuts are likely in the months to come makes the coming economic environment look all the more appealing for small-cap companies.
In anticipation of lowered rates, the small-cap-focused Russell 2000 Index is up by more than a quarter in the last year. While the increasingly favorable rate landscape should be a boon to small-caps in general, some companies will benefit more than others. Investors looking to small-cap stocks should consider a range of fundamentals and analyst forecasts.
TZOO: Shift to Paid Model Has Driven Stock Rally
Travelzoo Inc. (NASDAQ: TZOO) provides a variety of websites and mobile apps relating to travel. The firm instituted a $40 annual membership fee at the start of 2024 after previously providing a similar set of services for free. While the shift to a fee-based subscription undoubtedly upset some members, the benefits for the company have so far dramatically outweighed the costs: the firm has yet to see a year-over-year drop in quarterly revenue and maintained more than 30 million members as of the end of the second quarter.
To be sure, Travelzoo has not yet completed its transition to a fee-based service. The company plans to monetize 95% of its existing member base through paid subscriptions by the beginning of 2025. This plan has fueled investor optimism in recent months, and Travelzoo shares have surged by almost 30% year-to-date and 130% in the last year. What's more, based on a forward P/E ratio of 12.6 and projected earnings growth of 17.5%, the company may still have plenty of room to grow.
FBRT: REIT With Strong Projected Growth
The residential real estate market broadly stands to benefit from reduced interest rates, as buyers have an easier time accessing mortgages, and sellers are more motivated to offload when they have the prospect of a relatively low mortgage rate as well. Franklin BSP Realty Trust Inc. (NYSE: FBRT) invests in residential mortgage pass-through securities, making it especially likely to benefit from a boost to home sales.
This real estate investment trust (REIT) has strong new commitments of well over $600 million in the most recent quarter, and cash on hand to be able to repurchase 3 million shares during that period as well. Its dividend payment history is strong and it has a dividend yield of 11.2%. Analysts project earnings to grow by more than 24% and see upside potential of more than 21%, too.
AURA: Positive Trial Results Fuel Optimism
Clinical-stage biotech firm Aura Biosciences Inc. (NASDAQ: AURA) has had a tumultuous year with a number of brief spikes in stock price, though shares are down about 5% in the last 12 months as of October 10. Still, analysts are widely optimistic about the company, as AURA shares enjoy a "buy" rating and a consensus price target of $21.67, more than 160% above current levels.
Driving this optimism is the company's recent positive results from its Phase 2 study of bel-sar, a treatment for certain types of ocular cancers. These results showed strong tumor control rates and vision preservation among patients, as well as a favorable safety profile.
Risk vs. Reward for Small-Cap Stocks
Small-cap stocks tend to be riskier investments than larger, well-established companies, but they can also offer the prospect of outsized returns when they succeed. Managing risk in the small-cap space also depends on the type of company, the industry and sector, and other factors. Biotechnology companies like Aura, for example, may remain unprofitable for a long period of time before seeing top- and bottom-line (and share price) spikes based on the success of a new drug treatment. This may make firms like this even more volatile than other small-cap companies.
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