Thursday, December 1 2022

The Motley Fool’s Take

The growth of global e-commerce is a megatrend worth investing in. In Latin America, one company dominates the e-commerce market: MercadoLibre.

MercadoLibre is like eBay and PayPal rolled into one, except it’s growing much faster. It operates a marketplace (Mercado Libre), offers logistics services to sellers (Mercado Envios), grants loans to merchants (Mercado Credito) and has a growing digital payment business (Mercado Pago). Revenue was up 74% year-over-year in the fourth quarter, down from triple-digit percentages achieved in 2020, but with plenty of room for growth.

So far, Mercado Pago has 28 million users in Brazil and great potential for growth. And recently, MercadoLibre started offering a cryptocurrency trading tool, which can fuel more engagement with the app.

During the company’s fourth quarter earnings call, Chief Financial Officer Pedro Arnt expressed optimism: “Even with physical stores reopening, customers in Latin America have embraced online shopping, paving the way to further long-term growth in the region”.

The recent market sell-off in technology and growth stocks has given investors a chance to buy MercadoLibre at a relatively cheap valuation: a recent price-to-sales ratio of 8.2, down from 25 a year ago. (The Motley Fool owns shares of and recommended MercadoLibre.)

ask the fool

From CH to Saginaw, Michigan: If a company pays more dividends than it has profits, should I stay away?

The madman responds: Not necessarily, but digging a little deeper into the business is a good idea. What you’ve noticed is called a company’s “payout ratio” — the sum of its annual dividends per share divided by its earnings per share for the year. A ratio below 1 (100%) means the company has enough earnings to cover its dividend obligations, and a much lower ratio generally reflects plenty of room for dividend growth in the future.

On the other hand, a ratio above 100% indicates that a company pays more dividends than it generates net income. It’s not necessarily bad, if the company has enough cash to handle it and it’s just due to a temporary issue such as, perhaps, a supply chain issue. (If the company is facing long-term problems, it may end up cutting, suspending, or eliminating its dividend.) A high payout ratio warrants a closer look at what’s going on in the company.

From DK to Keene, NH: My mutual fund is apparently closed to new investors. Should I be worried?

The madman responds: No. Mutual funds will occasionally close to new investors for a while, if their managers end up with more shareholder dollars to invest than good ideas for where to invest them. That way, they don’t have to deploy shareholder money into second- or third-tier investment ideas. (Some funds will adopt a “soft close,” meaning they strictly limit new investment, usually to existing shareholders.)

school of fools

If you want to manage your finances more effectively and be a better investor, there are many books that can help you. Here are a few to check out at your local library or bookstore:

  • I’ll Teach You How to Be Rich, Second Edition: No Guilt. No excuses. No BS. Just a 6 week program that works by Ramit Sethi (Workman, $16). This set of well-organized steps can improve your financial situation and improve your financial future.
  • The Psychology of Money: Timeless Lessons on Wealth, Greed and Happiness by Morgan Housel (Harriman House, $19). This book offers eye-opening insight into how (and why) people make good and bad financial decisions.
  • The One-Page Financial Plan: A Simple Way to Be Smart With Your Money by Carl Richards (wallet, $25). It is essential to have a plan to manage your money and achieve your goals.
  • The Little Book of Value Investing by Christopher Browne (Wiley, $25). This is Warren Buffett’s style of investing, and it clearly works. The book can help you find and evaluate promising undervalued stocks.
  • Great by choice: uncertainty, chaos and luck – why some thrive in spite of themselves by Jim Collins and Morten T. Hansen (Harper Business, $24). To be successful in investing, it helps to understand what makes or breaks various businesses.
  • The Little Book of Behavioral Investing: How Not to Be Your Worst Enemy by James Montier (Wiley, $25). Behavioral finance is a fascinating subject and worth reading to help you minimize financial mistakes.
  • The Motley Fool Investment Guide: Third Edition: How The Fools Beat The Wise Men Of Wall Street And How You Can Too by David and Tom Gardner (Simon & Schuster, $22). Motley Fool’s first book, now updated, offers advice on how to value companies and invest in stocks and/or index funds.

My dumbest investment

From ES, online: Years ago, I was a total newbie, frequently searching online for the “hottest stocks right now”. I ended up finding a very small stock. In retrospect, I now see that it was artificially pumped (that’s how I found it in the first place – someone was running ads about it). I stupidly bought $1000 worth of stock and sure enough tripled my money in just a few days. I didn’t sell, though – again, I was a total newbie. My loss is close to 100%.

I’ve learned my lesson: I’ll never fall for another pump and dump program like this again, and if I end up riding a fake wave, I know I need to jump in immediately. It was a hard lesson to learn, but a great long-term learning experience.

The madman responds: Don’t be too hard on yourself – even the best investors make regrettable moves, and new investors can do a lot. This is why most investors, whether new or experienced, can benefit from reading and learning about investing.

As you know by now, many penny stocks (those trading at around $5 per share or less) can be manipulated into pump-and-dump patterns. This is where scammers promote stocks to entice new investors to buy, driving up the stock price – only to then dump their own stocks at higher prices, driving down stock prices, burning naïve investors .

Who am I?

My roots go back to California in 1980 when I started as an applied molecular genetics company. My initial efforts were trying to grow chickens faster, and one of the early successes was cloning a gene that led to my success, the drug Epogen, which treats anemia. Today, with a recent market value of $135 billion, I’m a biotech powerhouse, primarily focused on cardiovascular disease, oncology, bone health, neuroscience, nephrology, and inflammation. My top sellers include Aranesp, Enbrel, Kyprolis, Neulasta, Nplate, Otezla, Prolia, Repatha and Xgeva. I am one of 30 companies in the Dow Jones Industrial Average. Who am I?

Don’t remember last week’s question? Find it here.

Answer to last week’s quiz: J&J Snacks

The lobby of the Jerome Hotel in Aspen.
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