While growth stocks may have lost some of their lusters, they still have the potential to be excellent investment opportunities for those willing to take on some additional risk in pursuit of higher potential returns.
Over the past 18 months, the business environment has become increasingly unfavorable, leading to a corresponding decline in stock prices. The S&P 500, in particular, experienced one of its lowest returns last year, and the index remains significantly down in bear market territory.
Despite this, savvy investors recognize that bear markets present an opportunity to buy low. As the economy eventually rebounds, a new bull market will likely revive many undervalued companies. Therefore, growth stocks are an excellent choice if you seek greater value for your investment.
The reasoning is straightforward – growth stocks offer greater potential than value stocks, making them the optimal choice if you’re looking to recoup lost returns swiftly.
Without delay, here are three growth stocks worth considering for your portfolio.
Mastercard (MA)
Mastercard (NYSE:MA) boasts one of the world’s largest payment networks as a gateway to the global economy. The financial services company monetizes its infrastructure through three primary means. First, the company generates a share of the gross dollar volume (GDV) through its network. Secondly, it charges fees for switching payment transactions, including authorizing and settling. Finally, Mastercard offers value-added services such as cybersecurity and business analytics.
Mastercard possesses an almost unassailable competitive edge thanks to its sprawling acceptance network that spans an impressive 100 million merchant locations. This ubiquity sets high consumer expectations, compelling future merchants to participate and further cementing Mastercard’s dominance.
Moreover, the highly scalable nature of Mastercard’s operations, with negligible costs involved in switching each additional transaction, acts as a significant deterrent for new competitors seeking to enter the market. Mastercard could easily match or surpass its efforts even if they attempt to undercut its pricing.
Mastercard delivered strong financial results in the past year amid challenging macroeconomic conditions. The company saw a 6% increase in gross dollar volume and a 12% surge in switched transactions, which drove revenue up 18% to $22.2 billion, and GAAP net income rose by 17% to $10.22 per diluted share. Moreover, Mastercard is well-positioned to sustain this impressive momentum as a vital gateway to the global economy over the coming years.
The worldwide credit card payment market is anticipated to expand at a CAGR of roughly 8.5% from 2021 to 2028, serving as a significant tailwind for Mastercard. However, the company is poised to experience even more rapid growth as it expands its range of offerings. This includes innovative solutions for account-based payments (consumer bill pay and business-to-business transactions), disbursements (digital wallet payouts and insurance claims), and value-added services.
Given these prospects, Mastercard is one of the best growth stocks.
MercadoLibre (MELI)
Latin America boasts one of the world’s most rapidly expanding internet penetration rates. This, in turn, sets the stage for explosive growth across the region’s e-commerce, digital payments, and digital advertising markets. As a result, MercadoLibre (NASDAQ:MELI) is ideally positioned to capitalize on these trends.
MercadoLibre is the dominant player in online commerce and payments in Latin America. It boasts the largest ecosystem of its kind in the region.
To further cement its position as the leader, the company has expanded its offerings to include services such as payment processing, logistics, financing, and digital advertising, all of which contribute to the momentum driving its business forward.
Last year, MercadoLibre achieved impressive financial results, with revenue surging by 49% to reach $10.5 billion. In comparison, free cash flow rose by an astonishing sevenfold to $2.5 billion, yielding a commendable FCF margin of 24%. The growing take rate in both business segments is particularly noteworthy for investors.
The commerce takes rate increased by 20 basis points due to higher shipping fees and digital ad revenue, while the fintech take rate rose by about 50 basis points due to higher lending fees and credit revenue. This indicates that merchants and consumers increasingly rely on Mercadolibre’s expanding range of services, a promising trend.
In summary, MercadoLibre is one of the best growth stocks out there. Investing in it offers geographic diversification, exposure to a rapidly expanding market, and quick revenue growth. If you are looking for an international stock to diversify your portfolio, this is great.
Disney (DIS)
Disney (NYSE:DIS) has considerable growth potential and notable competitive advantages. Its media networks segment and its collection of Disney-branded businesses showcase impressive pricing power.
Disney’s recent earnings report was solid, with CEO Bob Iger returning to the helm and making his presence felt.
The entertainment conglomerate is undertaking cost-cutting initiatives and restructuring its operations into three units: entertainment, ESPN, and parks/experiences/products.
Disney’s streaming business, including Disney+, Hulu, ESPN+, Star+, and NHL.tv, has been in the spotlight lately. Despite its successful launch and servicing 164.2 million subscribers, the high production and expansion expenses affect Disney’s profits. During the first quarter, the company’s direct-to-consumer segment – comprising its streaming networks – experienced a 13% year-over-year rise in revenue. However, the operating loss for that segment increased by 78%, from $593 million to over $1 billion.
Disney’s management remains confident that Disney+ will become profitable by the end of 2024, as they have raised subscription prices and introduced an ad-supported tier.
Disney will benefit from the relaunch of its resort business. It’s a significant tailwind for the conglomerate. The move will help bolster the bottom line. The pandemic caused a decline in returns from this segment. But now things are getting back to normal. The Walt Disney Company’s parks, experiences, and products segment generated approximately $29 billion in revenue in 2022, reflecting a $12 billion increase from the previous year.
On the publication date, Faizan Farooque did not hold (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
