2 beaten-down growth stocks to buy now – The Motley Fool UK

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Growth stocks have faced a difficult time in recent months, partly due to rising bond yields (which may make it more expensive to borrow) and rising inflation. But many of these companies are still experiencing incredible growth, and their recent dips offer an excellent time to buy. These are the two that I’m particularly interested in.  

Latin American e-commerce giant

MercadoLibre (NASDAQ: MELI) has experienced incredible growth over the past few years, with its 2020 revenues reaching US$3.97bn. The start to 2021 has been even better. In fact, in its second-quarter trading update, it recorded revenues of $1.7bn. This is a year-on-year increase of 102.6%. Unique active customers also grew nearly 50% year-on-year to 75.9m. This shows that the company is growing, and there seems no signs that this growth is slowing down.

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Furthermore, the company has also reached profitability. Indeed, in the second quarter, it reported net income of $68.2m. Although this puts the stock on a very high price-to-earnings ratio of around 280, it’s also important to mention that the company is currently prioritising growth over high profits. This makes me hope profits will be able to increase over the next few years, and while still expensive, I feel that MercadoLibre stock has got room to rise. This is especially true so to the rapidly growing e-commerce market in Latin America.

The current dip in the MercadoLibre share price (it has fallen 19% in the last month) also makes the e-commerce giant a more tempting buy. This dip has mainly been due to rising bond yields, alongside some shareholders taking profits. Rising bond yields are a very legitimate concern, especially because the company has $2.4bn of debt, and larger interest payments may be the final result. But the company is still performing excellently, and I feel that there is significant upside potential. Therefore, I may add more shares to my portfolio soon.

An EV growth stock

I’ve remained wary of EV growth stocks due to their high valuations. But after falling 33% year-to-date, I feel that NIO (NYSE: NIO) stock now offers decent value. This is after the stock has managed to rise nearly 70% over the past year.

The reason I like NIO over other EV stocks is because of its current growth. In fact, in its second-quarter trading update, it reported revenues of $1.3bn, an increase of 127% year-on-year. As such, it has even higher growth rates than MercadoLibre at the moment, which is a very good sign. In September, the company was also able to deliver over 10,000 vehicles, an increase of 125% year-on-year. This demonstrates that the semiconductor shortage has not impacted the company too severely, and it’s still managing to satisfy the high demand.

My one issue with NIO is its current unprofitability, and the lack of a clear route to making profits. Indeed, in the second quarter, it reported a net loss of around $90m. The rising competition in the EV market may also hinder it and be an obstacle to the company reaching profitability. Even so, the potential is very clear, and while I prefer MercadoLibre as a growth stock, I’m certainly keeping a keen eye on NIO as well. If it dips any further, this could be a buy for me.

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Stuart Blair owns shares of MercadoLibre. The Motley Fool UK owns shares of and has recommended MercadoLibre and NIO Inc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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