Since its inception in 2017, the Fund has significantly outperformed its benchmark. It returned 17.4% per annum compared to 11.8% for the benchmark.

For the past seven years, Lakehouse Global Growth Fund has operated as an unlisted managed fund with a minimum investment of $25,000. 

Its debut as an ASX-listed ETF provides greater access to retail investors by removing the barrier of a substantial minimum investment. Like any other ASX ETF, it can be traded during market hours.

What is the Fund's investment philosophy?

Lakehouse Global Growth Fund invests in mid-to-large growth companies across global markets. 

It runs a relatively concentrated portfolio with just 20 high-conviction holdings. However, it is diversified across various sectors and geographies.

Its portfolio includes e-commerce provider MercadoLibre (NASDAQ: MELI), which is often described as the "Amazon of Latin America." Other prominent holdings include Japanese cloud-based software business Sansan and Dutch global payments innovator Adyen. It also includes Sweden's top online residential property portal, Hemnet, often described as the sleek Nordic counterpart to Australia's REA Group. 

How the Fund is approaching market uncertainty 

There's no denying that the past week has been especially tough for ASX investors. Many major global markets recording their worst week since 2020. 

In this context, Lakehouse's strategy could be especially appealing to long-term investors.

Commenting on the decision to launch this ASX ETF at this time, Lakehouse Global Growth Fund Portfolio Manager Nick Thomson noted:

Today's investors are inundated with short-term news headlines and market noise. Our long-term, high-conviction approach allows investors to focus on companies with clear strategic advantages built around loyalty, network effects, and intellectual property.

Expanding on this strategy, Portfolio Manager Nick Thomson suggested 'loyalty' refers to businesses focused on customer loyalty and competition. Meanwhile, 'network effects' describe businesses that provide a product that increases in value as the number of users grows. And 'intellectual property' means intangible assets provide longevity and pricing power but are not recognised on the balance sheet. 

To illustrate these three strategic advantages in practice, he detailed the investment case for MercadoLibre:

MercadoLibre's competitive edge – grounded in network effects across its online marketplace and digital payments platform – has allowed it to increase revenue ninefold over the past five years. Given the early stage of e-commerce adoption and the large, underbanked population across Latin America, we believe its best days still lay ahead.

MercadoLibre is a great example of a company with network effects. At its core, it operates a two-sided marketplace platform, connecting buyers and sellers. As the number of buyers grows, sellers are incentivised to join as they gain access to a larger customer base, which in turn, incentives more buyers to join as the value proposition improves. This creates a virtuous cycle, and ultimately, the value of the platform compounds exponentially as it scales.

ASX ETFs have never been more popular

Since first arriving on the market 24 years ago, ASX ETFs have soared in popularity. ETFs offer advantages that continue to attract investors through varying market conditions.

Between July 2001 and November 2024, funds under management for the Australian ETF industry grew at a compound annual growth rate of 43%. According to The Australian, ASX ETF FUM is set to exceed $300 million sometime this year.

Several popular passively managed ASX ETFs, which track their respective indices, have had a tough start to the year. Many have declined more than 10%.

Over the past five years, active ETFs have been on the rise, increasing from 37 in 2019 to 125 in 2024. 

In this market, an actively managed ETF like Lakehouse Global Growth Fund could be positioned for significant outperformance.

Through active management, its fund managers can allocate funds towards the best opportunities, whether that be different sectors or geographies. With over 60% of the fund's revenue located outside the United States, investors are insulated against the volatile US market. Give that the S&P 500 just booked its worst two day decline since April 2020, this strategy appears to be paying off.

The post Lakehouse Global Growth Fund makes its debut as an ASX ETF appeared first on The Motley Fool Australia.

On the "positive" side there are metrics like earnings, revenue, and profit. Then you have to balance those with the negative measures like expenses and liabilities.

But what are the most important numbers to look at?

To answer this, US financial expert and buy-and-hold advocate Brian Feroldi presented two stocks and asked his newsletter readers to choose one to buy.

Would you choose to buy A or B?

Feroldi said that stock A represents a business that has seen its:

• Expenses rise 260% since 2019
• Gross margins contract since 2019
• Price-to-earnings (P/E) ratio is more than 200

The company behind stock B is performing like this:

• Revenue rise 320% since 2019
• Operating margins expanded 14 percentage points since 2019
• Price-to-free-cash-flow ratio is 35

Which of these shares would you invest in?

"We hope the answer is obvious. Stock B would definitely win our money," said Feroldi.

"Torrid revenue growth means people love what's offered. Expanding operating margins suggests there's a moat present and operating leverage is kicking in. And the valuation — while not cheap — looks reasonable given the top-line growth."

He then revealed that stock B is actually a real company. It's e-commerce giant MercadoLibre Inc (NASDAQ: MELI).

With the share price rocketing more than 1,200% over the past 10 years, MercadoLibre is a top portfolio holding for Feroldi and his newsletter colleagues Brian Stoffel and Brian Withers.

Context matters when analysing metrics

But there's a catch to the choice between the two stocks.

It's that stock A is also MercadoLibre.

Feroldi explained that expenses are up because the MercadoEnvios fulfilment business "costs a lot to build out". Gross margin is down because the payment arm MarcadoPago is a business driven on volumes rather than fat margins.

"The PE ratio currently looks 'insane' mostly because of the accounting differences between earnings and free cash flow."

This is why choosing metrics to pay attention to when selecting ASX shares to buy is so tricky.

Feroldi suggested investors remember one critical thing when evaluating numbers measuring business performance: context.

"Context matters. We know this to be true in our non-investing lives, but often forget it when it comes to investing," he said.

"Valuation is part art and part science. If you choose to invest in individual stocks, you need to understand which valuation metrics matter, when they matter, and when they should be ignored."

The post Which valuation metrics matter most when picking ASX shares? appeared first on The Motley Fool Australia.

It's been a rough year for the NASDAQ Composite Index (NASDAQINDEX: ^IXIC), plunging nearly 30% this year. While part of this sell-off was certainly warranted (as 2021's valuations couldn't be sustained), some stocks have sold off too much.

Here are three stocks I'm looking at buying as their long-term opportunities are still intact while their share prices are well off their highs: Alphabet Inc. (NASDAQ: GOOG), MercadoLibre, Inc. (NASDAQ: MELI), and CrowdStrike Holdings, Inc. (NASDAQ: CRWD). Stick around to find out why.

Alphabet

Alphabet (formerly known as Google) is a huge conglomerate of businesses, but its primary focus is advertising. In good times, this business shines. Unfortunately, in bad times, advertising can be a rough business to be in.

When companies are forced to cut costs to maintain profits, advertising budgets are often the first thing to go. It's an easy cut compared to laying off workers or canceling projects, so many companies do it pre-emptively if they see signs of a slowing economy. This line of thinking harmed Alphabet in the second quarter, but it still managed to grow revenue by 13% year over year.

That resiliency shows how vital it is for businesses to advertise on Alphabet's family of businesses (like the Google search engine, Android operating system, or YouTube).

Despite rising expenses (which caused Alphabet's profitability to drop), Alphabet trades at a historically low 18.6 times earnings. That's dirt cheap for a company whose revenue has always recovered after economic downturns.

GOOG Revenue (Quarterly YoY Growth) data by YCharts.

I'm confident that this slowdown will be like the rest, and Alphabet's revenue growth will recover to higher levels, bringing its strong cash flows higher with it.

MercadoLibre

Another internet powerhouse, MercadoLibre, is based in Latin America. Serving 18 countries -- home to about 650 million people -- MercadoLibre brings many facets of e-commerce that Americans take for granted to Latin America.

With fintech and commerce platforms, consumers can shop on Mercado Libre (the commerce site) and pay with Mercado Pago (its payment platform) while using the credit card they got through Mercado Credito (its credit division). Then, the package may arrive on the customer's doorstep in less than 48 hours after being delivered by Mercado Envios (its logistics division). Nearly 80% of packages it handled were delivered in under 48 hours in Q2.  

MercadoLibre is the e-commerce site in Latin America, and for good reason. Backing up its market dominance are its results, which were fantastic in Q2.

Revenue rose 57% year over year to $2.6 billion, driven by strength in fintech, which grew revenue 107% to $1.2 billion. Commerce is facing tougher comparisons (thanks to a COVID-affected 2021 Q2) but still grew revenue by 23% year over year while its gross merchandise volume rose 26%. While not massively profitable, MercadoLibre still posted a 4.7% profit margin in Q2.

With those results, you might expect the stock to be up significantly this year or to at least break even. However, the shares are down 34%, and the valuation sits at five times sales. The last time MercadoLibre was this cheap was at the depth of the Great Recession in 2009.

MercadoLibre has traded around 12 times sales for nearly all of the past decade, so this stock is incredibly cheap. As a result, I believe MercadoLibre is one of the strongest no-brainer buys in the market today.

CrowdStrike

While the first two stocks are cheaply valued, CrowdStrike is not. Instead, it trades for a hefty 21 times sales.  Still, I think it's an excellent buy today because of its market opportunity and sustained, strong execution.

CrowdStrike is a cybersecurity company, and with the cost of cyberattacks expected to grow 15% annually through 2025, it's an area that businesses can't afford to cut corners on now. With its cloud-based platform, CrowdStrike's software can quickly deploy to network endpoints (like phones or laptops). Its software uses artificial intelligence and machine learning to evolve the program continuously, so when one customer experiences an attack, the entire customer base's defense is strengthened through that information.

While many companies have slowed their enterprise software spending, CrowdStrike managed to grow its customer base by 51% in Q2 (ended July 31) to 19,686. Among these customers are 69 of the Fortune 100 and 537 of the Global 2000, showing that CrowdStrike still has many customers to capture, especially smaller businesses worldwide.

Annually recurring revenue (ARR) also rapidly increased in Q2, rising 59% year over year to $2.14 billion. Still, this is a drop in the bucket compared to CrowdStrike's projected $126 billion market opportunity in 2025.

While CrowdStrike may be an expensive stock, its massive market opportunity and strong growth are the culprits of this valuation. Unfortunately, the best companies don't often come cheap, so investors sometimes pay a premium to own a specific business. However, if CrowdStrike's growth continues on its strong trajectory (management projects ARR will be $5 billion by January 2026), the price that investors are paying today will seem much cheaper.

The NASDAQ has multiple great investment opportunities available now; investors just need the confidence to step in and buy stocks when everything seems to be looking grim.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post 3 stocks I'm buying during the NASDAQ bear market appeared first on The Motley Fool Australia.

While U.S. stocks have generated incredible returns for many decades and investors the world over want to invest in the stocks of leading U.S. companies, U.S.-based investors can also benefit from investing in top foreign companies as well.

Investing in international companies can help investors diversify their portfolios geographically, help them tap into the explosive growth of emerging markets and other developing economies, and sometimes own shares of companies at less expensive valuations than are typically seen in the United States.

Here are three great foreign companies that U.S. investors can buy now.

1. MercadoLibre 

MercadoLibre (NASDAQ: MELI) is Latin America's leading e-commerce platform, as well as an emerging force to be reckoned with in fintech and payments. While U.S. investors don't hear as much about Latin America as they do about China in terms of massive growth opportunities, the Latin American market collectively has enormous potential in its own right.

For example, Brazil, where MercadoLibre derives much of its revenue, has a burgeoning population of over 200 million people and the world's ninth-highest gross domestic product (GDP). Mexico, another key market for the company, has a population of over 125 million and ranks 11th in GDP. This gives you an idea of the vast potential that lies ahead of MercadoLibre.

And this isn't just a story about potential -- the company is firing on all cylinders right now. In its most recent quarter, MercadoLibre posted scintillating year-over-year revenue growth of 57% (to $2.6 billion).

This was impressive at surface level but even more astounding when considering that it was contending with inflation and a stagnating macro economy, while lapping a quarter that included significant tailwinds from the pandemic. The company also increased total payment volume by 84% and gross merchandise volume on the platform by 26% while growing net income.

MercadoLibre is one of the top holdings in my portfolio and a compelling way to invest in growing e-commerce and online payment adoption in Latin America with a well-run company that is executing on all fronts.

2. CD Projekt 

Let's head from South America to Europe, and Poland specifically, for this next top international stock: video game publisher CD Projekt (OTC: OTGL.Y). With titles like Cyberpunk 2077 and the Witcher series, the company is establishing a nice foothold for itself in what is estimated to be a $218 billion market globally by 2024.

With a market cap of $2 billion, CD Projekt has plenty of runway ahead in this burgeoning industry. The stock is down 58% over the past year, and its flagship Cyberpunk 2077 game sold well but received criticism for its bugs and glitches. But these situations can also make for an opportunistic entry point for investors.

The company announced a partnership with Epic Games that will enable it to use Epic's coveted Unreal Engine, which should help it to avoid these types of issues and to "continue creating powerful, open-world RPGs [role-playing games]." An anime series called Cyberpunk: Edgerunners will be launching on Netflix (NASDAQ: NFLX), which could help to rekindle interest and broaden the game's appeal.

What I really like about CD Projekt is that the joint CEOs, Adam Kiciński and Marcin Iwiński, have built the company themselves and have been there for a very long time -- 28 years each. Not only that, but they have a lot of skin in the game as Iwiński owns 13% of the company, Kiciński owns 4%, and in total they and other founders and board members own 34% of shares.

I like the longevity and the fact that the people who helped to build the company from scratch are still there and invested for the long term. CD Projekt also pays out a small dividend.

With strong leadership and some success in a massive global market, the company looks like another top international company for investors to consider. U.S. investors can buy its American depositary receipt, or ADR.

3. Canadian Natural Resources 

Not all top foreign companies need to work on cutting-edge video games or create the future of commerce, and U.S. investors don't always need to look far from home to find them. Take Canadian Natural Resources (NYSE: CNQ), one of Canada's top producers of oil and natural gas, for example. The $63 billion company has a strong presence in Alberta's oil sands, as well as operations in Great Britain's North Sea and offshore assets in Africa.

Management has a strong commitment to creating value for shareholders on a per-share basis, and it has smartly used 2022's increase in oil prices to pay out dividends and repurchase shares. The stock currently yields just over 4%, and the company also recently stated that, thanks to its strong performance and execution this year, it is rewarding shareholders with a special dividend of $1.50 Canadian dollars ($1.17) per share, which will be payable to shareholders of record as of Aug. 23.

This March, the company also enacted a large share buyback authorization in place that allows it to buy back about 10% of its public float by March 2023. Even after a 33% gain year to date, shares of Canadian Natural Resources still look attractive at just seven times earnings. All in all, it has world-class assets, a strong commitment to shareholder value and returning capital to shareholders, and an inexpensive valuation.

U.S. stocks are great, and there is also a world of opportunity outside of the United States for investors who want to diversify their portfolios and gain exposure to new markets and different valuations. Investing in top foreign companies like the three above is a great way to get started.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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It may be tough to fathom how stocks can compound your wealth over years and decades. The secret to getting rich is nothing amazing -- it simply involves buying and owning great stocks over the long term. What you do need, however, is patience to stay the course as share prices can go through significant volatility in the short run.

That said, if the selection process is done correctly, all you need is to sit tight on your winners. Great companies can steadily grow their revenue, profits, and cash flow over time, catalyzing the rise in their stock price and helping you to get rich by the time retirement comes along.

The attributes you should look for include a strong and growing brand, trends that can sustain long-term growth, and a long runway for that growth to materialize. Technology companies qualify as great compounders because many have dominant brands and are well-positioned to grow along with digital adoption and technological advancements.

Here are three technology stocks with all the factors in place that can grow your pot of gold for your retirement.

Apple

Apple Inc. (NASDAQ: AAPL) must surely qualify as one of the most innovative technology companies in the world. The manufacturer of the iPhone has, time and again, proven that its brand alone is enough to endear a generation of loyal followers to its multitude of products, devices, and services. The technology behemoth has dipped just 5% year to date, despite a near-18% decline in the NASDAQ Composite index over the same period, a testament to its durability and resilience.

Financially, the company has continued to post increasing revenue and net income over the past three years despite the onset of the COVID-19 pandemic. For its fiscal 2019 (ended Sept. 28), net sales clocked in at $260.2 billion and rose to $365.8 billion by fiscal 2021. Net income soared by 71.3% over the same period to hit $94.7 billion. The technology giant has also continued raising its quarterly dividend after going through a 4-for-1 stock split in 2020.

Apple recently also reported a strong fiscal 2022 third quarter, with revenue hitting a record high of $83 billion, up 2% year over year. Its active installed base of devices also reached a new all-time high for all its major product categories, while a record number of people have ditched other brands to switch to its ubiquitous iPhone.

The company expects strong iPhone sales in 2023 despite a looming economic slowdown and has ordered its suppliers to assemble 90 million of them for the next iteration of its iPhone, the iPhone 14. Elsewhere, the company's innovation may surface again for the next version of its smart watch, allowing for an accurate temperature sensor to be incorporated into it. Investors can keep the faith that Apple's strong brand power and its continued innovation will help to steadily grow its loyal customer base.

PayPal

Payments company PayPal Holdings (NASDAQ: PYPL) has been an important conduit connecting merchants and their customers for many years. Its platform and digital wallet allow customers to conduct a wide variety of secure online transactions that have seen total payment volume (TPV) grow steadily for the company. Over the years, PayPal has also expanded its payment options, recently allowing customers in the U.K. to transact using cryptocurrencies such as Bitcoin and Ethereum.

The company's financial and operating metrics have also impressed. Net revenue climbed from $17.8 billion in 2019 to $25.4 billion in 2021, with net income jumping nearly 70% over the same period to $4.2 billion. For the first half of 2022, net revenue retained its uptrend, rising by 8.3% year over year.

PayPal has also committed to improving its operating margin in 2023 while authorizing a new $15 billion share repurchase plan. Total active accounts rose from 305 million in 2019 to 426 million in 2021, with TPV growing from $712 billion to $1.25 trillion over the two years. 

There's every indication PayPal can continue its momentum as the pandemic has accelerated digital adoption and e-commerce usage. The payments company is tapping this trend to continue growing its user base and TPV. In time, the increase in the number of users on its platform should also lift its revenue and net income.

MercadoLibre

MercadoLibre (NASDAQ: MELI) is the largest e-commerce player in Latin America. It not only provides a platform for buyers and sellers in the region to trade products, but also hosts a payments platform and operates a logistics fulfilment network to provide an all-encompassing fintech solution.

The company's financial growth has been stunning, with net revenue more than tripling from from $2.3 billion in 2019 to $7.1 billion in 2021. MercadoLibre went from a net loss of around $172 million in 2019 to a net profit of $83.3 million and has reported a strong surge in operating metrics along the way.

Gross merchandise volume (GMV), a measure of the transaction flow on the company's platform, doubled from $14 billion in 2019 to $28.3 billion in 2021, while TPV soared from $28.4 billion to $77.4 billion over the same period. Needless to say, the total items shipped and the number of payment transactions have also ballooned in tandem, making MercadoLibre one of the leading e-commerce players in the region.

The momentum has continued into 2022, with its second-quarter GMV reaching an all-time high of over $8.5 billion, up 22% year over year. The company's growth shows no sign of slowing as it launches improvements to its platform such as fast and free shipping for three-quarters of its GMV and a better navigation tool to encourage usage. Its fintech solutions division is also launching more financial services and increasing its access to credit to attract more users and merchants.

With a dominant market position in South America and a culture of continuous improvement, MercadoLibre looks set to continue its breakneck growth in the years ahead.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Boy, the good volatility sure is nice. The Nasdaq Composite Index (NASDAQ: .IXIC)  is up 329 points, or 2.7%, as of 2:34 p.m. ET on Aug. 3, 2022. Some of the biggest Nasdaq gainers include Moderna (NASDAQ: MRNA) and PayPal (NASDAQ: PYPL), both up after reporting earnings, and MercadoLibre (NASDAQ: MELI), ahead of earnings.

Shares of Okta (NASDAQ: OKTA) are on the rise, as well, after a competitor was acquired at a nice premium. Shares of social media giant Meta Platforms (NASDAQ: META) are up 5%, finally starting to reverse some of the losses of the past year following its relatively solid earnings results a few days ago. 

Upbeat earnings, high hopes leading to today's bounce

Both biotech-giant Moderna and payments-king PayPal reported second-quarter results before trading today. Moderna investors loved the 7% revenue growth and were happy with the $5.24 earnings per share that smoked expectations. In short, shareholders (and buyers) continue to have high expectations for the company.

However, it's not all roses (and COVID-19 booster shots). The company took a $499 million write-down for expired vaccine inventory -- more than double the amount in the first quarter -- and COVID-19 booster-shot volume and revenue has slowed. Moderna's biggest unanswered question: What is its next act if COVID-19 vaccines aren't the same cash cow in the coming years?

PayPal similarly reported better-than expected second-quarter results, with 13% payment volume pushing revenue up 10%, adjusting for currency exchange. While the company reported much slower growth than it has experienced over the past few years, double-digit growth in an environment where people are returning to more in-person shopping is a very real positive. CEO Dan Schulman pointed out that the company's investment in digital wallets and online-checkout solutions is paying off with increased market share. 

Shares of Latin American e-commerce and payments-giant MercadoLibre are also rocketing higher today, ahead of the company's earnings report, which is scheduled after market close on Wednesday. Like other e-commerce and web-based companies over the past year, its stock has been pummeled. PayPal and Amazon both turned in results investors liked this week, and it seems like investors have high hopes for MercadoLibre, too. 

Okta gets a buyout premium

Cybersecurity is one of the hottest segments out there right now. Billions of dollars will flow into the sector from corporate budgets in the years to come as companies take steps to protect their data and infrastructure from bad actors.

Private-equity firm Thoma Bravo certainly sees the potential. Today's deal for it to buy Ping Identity (NYSE: PING) for a 63% premium to its prior share price is strong evidence of that. 

Investors also seem to believe that Okta, a leader in identity verification and access management, might very well be worth a good bit more than Mr. Market has been valuing it lately. 

Has Meta finally bottomed?

Meta Platforms investors may have finally seen peak pessimism pass. The shares are still down more than half from the company's all-time high. This occurred after it reported that second-quarter revenue fell, which was the first revenue decline in the company's history as a public company.

Since then, however, it seems that investors have processed the results and realized that active users grew on all its social media platforms and ad volume was up by double digits. In other words, the company's biggest challenge right now seems to be weak ad demand overall, and that's pulling down prices. This is a cyclical, temporary concern and maybe not as big a problem as it has seemed.

Despite its challenges, Meta remains head and shoulders above every other social media company as an ad platform. At 14 times trailing earnings and 17 times expected forward earnings, Meta's shares are getting very attractive, and today's upwards movement supports that. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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During the peak pandemic years, e-commerce stocks could do no wrong. Now, they are entirely out of favor with the market. However, does this weakness present a buying opportunity?

Some of the top e-commerce stocks on my checklist are Amazon (NASDAQ: AMZN), MercadoLibre (NASDAQ: MELI), Shopify (NYSE: SHOP), and Etsy (NASDAQ: ETSY). Each is down significantly from their record highs. While all might be solid companies, are their stocks a buy? Let's find out.

The businesses

Each company operates in its own market niche:

• Amazon is the world's largest e-retailer and sells practically anything you could ever want. It also has a growing cloud computing business that diversifies the company.
• MercadoLibre is focused on Latin America and has an e-commerce platform, digital payments business, shipping logistics division, and consumer credit arm.
• Shopify isn't a direct e-commerce play, but it provides the software necessary for businesses to launch their e-commerce store.
• Etsy's site offers products that are often customizable and typically sold by individuals with a relatively small operation.   

All four companies saw massive sales growth during the pandemic, but only one has maintained its growth rate through 2022.

AMZN Revenue (Quarterly YoY Growth) data by YCharts

When the other businesses' sales growth fell dramatically, MercadoLibre's stayed steady at 63%. This was primarily due to 113% year-over-year (YOY) growth of its fintech revenue during the first quarter. However, its commerce revenue still grew a respectable 44% (which was higher than any of the other companies).

Both Amazon and Etsy had abysmal first quarters, and it won't get better for Etsy. Management projects Q2 sales to rise 7% at the midpoint, a metric that a weakening consumer could impact. Most of Etsy's goods are discretionary and nonessential during tough times. But this sentiment may be baked into the stock, which trades for 20 times free cash flow.

Amazon was propped up by its Amazon Web Services (AWS) cloud computing division in the first quarter as its sales rose 37% over the year-ago period. However, North American commerce sales only rose 8%, while international sales fell 6%. Additionally, Amazon's free cash flow slid further into negative territory, with Amazon burning an astounding $29 billion during the quarter.

Etsy and Amazon both had horrendous quarters, and besides AWS, there doesn't seem to be a light at the end of the tunnel. But what about Shopify?

Those who may not have checked on Shopify's stock lately may be wondering, "Why is this stock priced so low?"

As of June 28, Shopify split its stock 10-for-1, which means each share is now worth a tenth of what it used to, but investors who held the stock received nine additional shares to make up for the split.

As for the business, Shopify's sales grew a steady 22%. This rise was driven by a 29% increase in its merchant solutions segment, which takes a cut of each item sold through Shopify's platform. Because Shopify merchants have to pay a monthly fee to use its software, the company should be able to maintain a solid chunk of its business regardless of how the consumer is doing. However, it could see a material slowdown due to the weakening consumer because its merchant solutions made up 72% of Q1 revenue. 

Business outlook

Looking forward, it's hard to get excited about Etsy's growth prospects. It operates in a niche that thrives when the consumer is flush with cash -- something we are not experiencing currently. Amazon's only bright spot is AWS, which has massive tailwinds behind it. As for the e-commerce business, it's almost too big to grow rapidly anymore.

Shopify has a long way to go before fully deploying its vision for a complete e-commerce solution, but many stores have already taken the leap from brick-and-mortar to online with Shopify. Now, Shopify's growth will be driven by the growth of its clients, which could still be significant.

MercadoLibre has by far the best outlook. With its fintech divisions, there seems to be no sign of slowing down. Additionally, only about 4.9% of total retail sales occur online in Latin America versus 16.1% in the U.S. Latin America is home to more than 650 million people, giving MercadoLibre a vast growth runway.

Stock valuations

Comparing each stock directly from a price-to-sales ratio standpoint is dangerous as each has a different margin profile. However, examining where the stocks have traded historically can give investors insight into how cheap they are.

AMZN PS Ratio data by YCharts

From this chart, Amazon is returning to valuation levels last seen in 2016. On the flip side, MercadoLibre is valued the same as it was at the depths of the Great Recession. MercadoLibre isn't nearly as in trouble as it was in 2009 when the financial system was on the brink of collapsing. However, that is how the market values it. 

Both Shopify and Etsy are much younger, so investors don't have as much of a historical record on which to base their analysis.

SHOP PS Ratio data by YCharts

These two are returning to lows reached in 2016. However, growth prospects were greater back then because e-commerce wasn't as developed. Now that the largest e-commerce catalyst that will likely ever occur has subsided, the future growth story isn't as bright for Shopify or Etsy, leading to a lower valuation.

It's hard to ignore how superior MercadoLibre appears to be as an investment. It's growing the fastest, has a sizable market available, and is valued cheaply. That's not to say it is risk-free since operating in Latin America can be tumultuous with governments and economies.

However, with its wide footprint, it should be able to weather almost any storm it experiences. So of the four, MercadoLibre is my top e-commerce stock to buy, and it really isn't close.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The growth-heavy Nasdaq Composite has plunged 27% since peaking in November, and many individual stocks have fallen even further. For instance, MercadoLibre (NASDAQ: MELI) and Airbnb (NASDAQ: ABNB) are down 59% and 46%, respectively, from their own all-time highs. Generally speaking, those declines have been fueled by concerns about high inflation and rising interest rates, not any material weakness in the businesses. 

Of course, that doesn't make the losses any less real, but it does create a buying opportunity. MercadoLibre and Airbnb are important players in massive markets, and both stocks are backed by a compelling investment thesis.

Here's what you should know.

1. MercadoLibre

MercadoLibre is an unstoppable force in Latin America. It operates the largest e-commerce marketplace in the region, both in terms of unique visitors and sales. That creates a powerful network effect: Sellers naturally gravitate toward the most popular platform, and buyers naturally pick the platform with the greatest selection.

To further accelerate that flywheel, MercadoLibre offers an ecosystem of integrated services. That includes digital payments through Mercado Pago, fulfillment and logistics through Mercado Envíos, and financing through Mercado Crédito. Those value-added products make its marketplace even stickier, and adoption is on the rise in all cases.

In the first quarter, Mercado Pago's payment volume rose 81% year over year to $25.3 billion. Mercado Envíos played a part in shipping 91% of items through its managed network, up from 80% in the prior-year period. And Mercado Crédito's credit portfolio rose 319% to $2.4 billion. That momentum translated into strong financial results. Revenue soared 65% to $2.2 billion in the first quarter, and the company generated a GAAP profit of $1.30 per diluted share, up from a loss of $0.68 in the same period last year. 

In the coming years, shareholders have good reason to believe the company can maintain that momentum. Internet penetration is growing quickly in Latin America. That should be a tailwind for MercadoLibre's commerce and fintech businesses. And with the stock trading at five times sales -- near its cheapest valuation in the past decade -- now looks like a great time to buy.

2. Airbnb

Airbnb connects potential guests with four million hosts, helping travelers find immersive lodgings around the world. And by crowdsourcing rental properties, Airbnb can offer more flexibility than traditional hotels, both in terms of lodging type and location. Guests can stay at a rustic farmhouse in the country, a log cabin in the mountains, or a trendy apartment in the city. Airbnb even lists over 170,000 unique stays -- think treehouses, windmills, and big-rig trucks.

Thanks to its differentiated business model, Airbnb is essentially printing cash. Revenue skyrocketed 93% to $6.6 billion in the past year, and the company generated $2.8 billion in free cash flow, up fivefold from $517 million.

Last year, management was laser-focused on preparing for the travel rebound. The company simplified the onboarding process for hosts and introduced flexible search parameters for guests, allowing people to receive personalized recommendations when they aren't tied to a particular date or destination. Both initiatives were wildly successful. Airbnb finished 2021 with a record six million active listings on its platform, and guests have used the flexible search option two billion times.

In the coming years, management plans to ramp up its Experiences offering, a service that connects guests with immersive activities. Experiences account for $1.4 trillion of Airbnb's $3.4 trillion addressable market. If the company can successfully scale that part of the business, it could turbocharge growth and further differentiate the company from its rivals.

Regardless, Airbnb offers more flexibility for travelers, and its business model is more agile than traditional travel options. The company can onboard new hosts in a matter of minutes without spending much money. That means it can add inventory more quickly and cost-efficiently than traditional hotels. That should make this growth stock a rewarding long-term investment. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Investors endured another round of selling in the stock market, piling on after last week's turbulent performance. For six months now, major market benchmarks like the Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) have consistently lost ground. The S&P is inching closer toward joining the Nasdaq in bear market territory with a 17% drop from its highs at the beginning of the year.

Data source: Yahoo! Finance.

One area that has been hit especially hard lately is the e-commerce industry. Companies thrived in 2020 and 2021 as consumers had to resort to internet-based shopping during pandemic-related lockdowns. Now, though, reopening trade has many investors feeling like the heyday of these stocks is over. Moreover, with geopolitical pressures emerging onto the global scene, some believe that the factors that made e-commerce as lucrative as it was could be fading. Below, we'll look at some of the stocks seeing big losses and assess their longer-term prospects.

Big losses in internet retail

Today's session had some big losses, but many of the bottom performers were in the global e-commerce arena. Consider the following:

• Latin America's MercadoLibre (NASDAQ: MELI) fell 17%.
• In Singapore, Sea Limited (NYSE: SE) was down more than 15%.
• E-commerce supporter and buy now/pay later specialist Affirm Holdings (NASDAQ: AFRM) gave up more than 17% of its value.
• Canadian e-commerce platform provider Shopify (NYSE: SHOP) fell 10%.
• Online auto specialist Carvana (NYSE: CVNA) was down around 16.5% on the day.
• South Korea's Coupang (NYSE: CPNG) was one of the biggest losers, falling more than 22%.

As you can see, the selling was relatively indiscriminate and worldwide in scope. Even giants in the industry saw sizable declines, with Amazon.com (NASDAQ: AMZN) falling 5% and China's Alibaba Group (NYSE: BABA) posting a nearly 6% drop.

Most of these declines merely added to much more extensive drops over the past several months. The six stocks in the bullet points above are all down between 60% and 90% from their best levels over the past year, and even Amazon and Alibaba have fallen 40% to 60%.

The long-term picture for e-commerce

E-commerce has made itself an integral part of the overall retail industry, and its long-term prospects remain favorable. Industry watchers see e-commerce continuing to gain market share from brick-and-mortar stores, with one analyst seeing $17.5 trillion in global digital commerce taking place by 2030, up from just over $4.2 trillion in 2020.

But just because there's more e-commerce activity doesn't automatically mean that investing in the space will be equally lucrative. Greater competition could drive margins down, while higher logistics costs could weigh on profitability as well. However, if retailers try to take back some of the features that have made e-commerce popular, such as fast shipping at little or no cost, it could set back prospects for internet retail growth.

The wild card in e-commerce is the extent to which the industry has relied on functional global supply chains. If the free flow of goods comes to a halt, it will have ramifications for the entire retail industry, but e-commerce in particular could see its anticipated higher growth rates come to a standstill.

Lastly, investors need to remember that despite their recent drops, most of these stocks are still sporting solid gains. Amazon has doubled since late 2017, while MercadoLibre and Shopify have tripled and Sea is up nearly 300%. Those huge swings serve as a reminder that the price of extremely high returns from high-growth stocks can be massive volatility, making it essential to find the best stocks earlier rather than later.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Think about personal computers in the early 1980s. The internet in the 1990s. Smartphones in the first decade of this century. All of them represented investing opportunities with tremendous potential.

You can't travel back in time to buy the top stocks in these areas. However, there are still some areas that could be massive opportunities that you can invest in with a new year right around the corner. Here are five unstoppable trends to invest $5,000 in for 2022.

1. Artificial intelligence

Artificial intelligence (AI) has already become commonplace in our lives. Some of the ways are easy to spot, such as the virtual AI assistants on phones and home devices. Others aren't as obvious -- for example, many websites use AI to improve their product recommendations. But you can bet that AI is going to play an even bigger role in the future.

There are plenty of AI stocks that you could buy. I'd put Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) near the top of that list.

Data provides the fuel for AI apps -- and Alphabet arguably has more data than any other company. Alphabet uses AI extensively in its apps. Its Waymo business is a leader in self-driving-car technology. And its DeepMind ranks as one of the leading researchers in advancing AI. 

2. Digital payments

Cash isn't king anymore -- at least not the physical kind. The adoption of digital payments is rapidly pushing cash or cheques to the side. Maybe these physical forms of payment won't totally disappear anytime soon, but their use will almost certainly continue to decline.

PayPal (NASDAQ: PYPL) ranks as a top leader in digital payments. Its shares are down quite a bit from their highs this year. However, the long-term prospects for the company remain strong. PayPal has the most widely accepted online digital wallet. Its Venmo app is gaining momentum, especially with Amazon.com (NASDAQ: AMZN) beginning to accept it as a payment in 2022. 

The company should have plenty of growth opportunities ahead as digital payments are used more frequently in brick-and-mortar stores. In the war on cash, PayPal appears to be a five-star general.

3. E-commerce

E-commerce stands as one of the top growth drivers for the increased use of digital payments. But while people have been shopping online for more than two decades, e-commerce is still only in its early stages. That's especially the case in emerging markets.

You won't find many better e-commerce stocks to buy than MercadoLibre (NASDAQ: MELI) in serving emerging markets. The company is the e-commerce leader in Latin America. The e-commerce market share penetration in the region is expected to double within the next four years. MercadoLibre will probably be the biggest winner as this happens.

The company is also pioneering digital payments in Latin America with its Mercado Pago platform. It offers fulfilment services including logistics and warehousing for merchants as well. With its e-commerce dominance and other products and services, MercadoLibre could make investors a lot of money over the next decade and beyond.

4. Genomics

A genomics revolution is underway. The ability to unravel the secrets of DNA is changing healthcare. Diseases can be diagnosed more accurately and quickly. Therapies are being developed that harness the power of genomics to treat and even cure diseases.

You won't have any problem finding stocks that could soar in this category. Vertex Pharmaceuticals (NASDAQ: VRTX), though, stands out as a top pick. The company currently enjoys a monopoly in treating the underlying genetic cause of cystic fibrosis. Its success in CF has enabled Vertex to build a promising pipeline.

Vertex and its partner, CRISPR Therapeutics, plan to file for regulatory approvals by the end of 2022 for a gene-editing therapy that effectively cures blood diseases beta-thalassemia and sickle cell disease. The big biotech is advancing a drug that targets the treatment of genetic kidney diseases into pivotal testing next year. And Vertex could even have a potential cure for type 1 diabetes in clinical development. 

5. Metaverse

It seems like nearly everyone is talking about the metaverse after Facebook changed its name to Meta Platforms and unveiled an ambitious strategy for building the virtual universe. Estimates vary on how much money might be made in the metaverse, but several analysts project the amount will be in the trillions of dollars annually.

Nvidia (NASDAQ: NVDA) should be front and centre as the metaverse market explodes. The company has already launched its Omniverse platform for 3D simulation and design collaboration. Nvidia CEO Jensen Huang thinks that one component of this platform -- Omniverse Avatar -- could have an addressable market of $40 billion per year.

But perhaps the biggest opportunity for Nvidia is in supplying the graphics chips that will be needed to power metaverse apps. The company's graphics processing units (GPUs) are considered by many as the gold standard for gaming systems today. The metaverse seems likely to boost the demand for Nvidia's GPUs in a huge way. Nvidia could look like a no-brainer stock to buy in retrospect as the metaverse becomes a reality.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The COVID-19 pandemic has forever changed the way some consumers make purchases. And with access to high-speed internet greater than ever, online shopping activity has experienced a sea-change in the last year, even in countries that have been slow to adopt e-commerce and digital payment systems in the past.

These changes have played right into the hands of Latin America's leading online commerce platform MercadoLibre (NASDAQ: MELI) and social media titan Facebook (NASDAQ: FB), which is slowly rolling out its own digital payments and shopping tools to cash in on the global trend as well.

While each has significant growth opportunities ahead, both stocks present investors with unique risks. Which one is the better buy right now?

MercadoLibre: All-out expansion, but local economy headwinds

MercadoLibre was a growth stock before COVID-19, but the pandemic has accelerated Latin America's migration to online shopping. Revenue has skyrocketed into triple-digit percentage territory over the last 12-month stretch, notching a 111% year-over-year gain in Q1 2021 (or up 158% when excluding the effects of currency conversion) to $1.4 billion.  

E-commerce remains a small fragment of shopping activity in most Latin American countries, still just a single-digit percentage of the grand total spent on retail in the most populous countries like Brazil and Mexico. But MercadoLibre is reporting a sharp uptick in activity on this front. In Q1 alone, it said it had 69.8 million active users, 62% more than a year ago. That's only about 10% of the total population of Latin America, though, so there's no shortage of room for the company to continue expanding.

One way it's extending its reach is with its digital payments business. Many people in Latin America don't have a basic banking relationship but do have a smartphone. Mercado Pago and Mobile Wallet -- MercadoLibre's digital payments and mobile money management applications -- are opening up access to basic checking and payments services to millions of people. The result? More online shopping on MercadoLibre. Total payment volume increased 82% year over year in Q1 (129% excluding currency conversion) to $14.7 billion, $2.9 billion of which was transacted with Mobile Wallet. The company reported that some three-quarters of respondents plan to continue using digital payment options even after the pandemic ends.

MercadoLibre is the primary beneficiary from a massive move to online activity south of the border, but there are risks. Many countries the company operates in have been experiencing persistently high inflation, which erodes the value of the company's profitability and assets on its balance sheet over time. MercadoLibre may have begun to address this issue with its recent (and still rather small) purchase of Bitcoin to facilitate transactions in the currency, which could help it stave off inflationary effects. But for now, investors should keep an eye on how inflation is throttling growth (which is apparent in the difference between currency conversion-neutral revenue and the much lower realized revenue figures in Q1). 

Facebook: A tech platform with massive optionality, but regulatory concerns

Facebook needs little introduction. Its family of apps (including Instagram and WhatsApp) had 3.45 billion monthly users during the first three months of 2021, a 15% increase over a year ago. In spite of its massive size and reliance on advertising, it's still growing at a rapid pace. Revenue was up 48% year over year to $26.2 billion in Q1 2021, and management expects a similar rate of growth in Q2 before moderating in the second half of the year.  

Like other massive tech platforms, Facebook is highly profitable. It generated $24.2 billion in free cash flow over the 12 months that ended March 31, 2021 (a 26% free cash flow profit margin). This gives Facebook massive wiggle room to invest in new ventures. One area is digital payments and small business e-commerce. Facebook tapped software firm Shopify to power Facebook Shops, online Facebook, Instagram, and WhatsApp storefronts for merchants. It has also launched WhatsApp Payments in India and Brazil, allowing users to transfer money to each other and to small businesses that use the platform. This payments service could eventually make it a bigger rival of MercadoLibre.

Facebook's aspirations on this front extend far beyond that, though. It's still hard at work getting Diem -- a blockchain-based stablecoin (a type of cryptocurrency with a value pegged to a fiat currency, in this case the U.S. dollar) -- up and running. Diem is being designed to power Facebook's ambitious global digital payments system. If it can overcome regulatory hurdles, Diem could be a big deal considering the social media company has billions of users already.  

Speaking of regulatory hurdles, though, Facebook has many on the horizon. It has frequently come under scrutiny for its practices related to personal user data, and Apple and Alphabet's Google have started eliminating app activity tracking on smartphones this year (which makes digital ads that Facebook relies on less valuable to marketers). Also, a looming worry is the Federal Trade Commission's (FTC) lawsuit to unwind the acquisitions of Instagram and WhatsApp (purchased in 2012 and 2014, respectively), citing anti-competitive practices at Facebook to squash its competition. If the FTC gets its way, Facebook's empire would be broken up. The individual parts would likely still remain formidable players in the tech space, but not as dominant as the sum of their individual parts right now under the Facebook umbrella. 

Which is the better buy?

MercadoLibre is earlier on in its growth journey as it expands e-commerce across Latin America, but it trades for a premium 111 times trailing-12-month free cash flow. That metric will moderate over time as the company reaches a more profitable scale, but along the way, there will be some wild swings in stock price -- especially considering the uncertain economic situation surrounding some of the countries it operates in.

For now, Facebook is a far more stable company and is still growing at a fast pace. It trades for 40 times trailing-12-month free cash flow, a reasonable value given its expected expansion this year and even faster-growing bottom line. A possible break-up of its business could be a problem in a couple of years as the antitrust lawsuit progresses, but it won't be the end of the line for Facebook if the FTC wins the case. At this juncture, I prefer the regulatory risk over the inflation pressure MercadoLibre faces, and I think Facebook is the better buy (though MercadoLibre is certainly worth a look too).

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Amazon (NASDAQ: AMZN) and MercadoLibre (NASDAQ: MELI) exist as similar businesses targeting different markets. While Amazon might have become the king of e-commerce in the developed world, MercadoLibre's approach has effectively made it the Amazon of Latin America.

The question now comes down to which company has better positioned itself for stockholders. Let's take a closer look to see which consumer discretionary stock will likely offer higher investor returns.

Similarities and differences

As most know, both Amazon and MercadoLibre emerged as e-commerce pioneers, working to make e-retailing a viable shopping option for many of the world's consumers.

Amazon brought these benefits first to North America and later to other countries. The company has also moved into the Latin American market. However, it has faced a key competitive disadvantage in this region. Most Latin American consumers use cash regularly, and a large percentage of them hold neither a bank account nor a credit card. This presents a challenge to e-retailers who rely on cashless payment.

MercadoLibre has addressed this through its payment system, Mercado Pago. On the Q1 2021 earnings call, CFO Pedro Arnt emphasized the company's role to "democratize money and access to financial services" within its ecosystem. To this end, Mercado Pago offers fintech options so consumers can pay for items on the site. Moreover, the company has since expanded Mercado Pago to help other companies facilitate cashless commerce. Not only does this give MercadoLibre a competitive advantage in its home region, but it also makes MercadoLibre a fintech company.

Still, investors should remember that Amazon also operates a nonretail business with its cloud infrastructure service, Amazon Web Services (AWS). AWS not only pioneered the cloud industry, but it also delivered much higher margins than retailing and, at least until recently, accounted for a majority of company profits. These profits have sometimes subsidized Amazon's retail arm. One example is the shift from two-day to one-day shipping in 2019, when Amazon sacrificed short-term profit growth to widen its competitive advantage.

How the financials compare

Amazon supports a market cap of more than $1.6 trillion, one exponentially larger than the $70 billion market cap for MercadoLibre. However, this means that MercadoLibre can achieve higher growth percentages than Amazon on lower volumes.

In the first quarter, MercadoLibre's revenue of $1.4 billion surged by 111% compared with year-ago levels. The company also logged a $34 million loss, more than the loss of $21 million in the same quarter last year. Still, investors should remember that while the company did lose money in the first quarter of last year, that did not prevent MercadoLibre from turning a profit in fiscal 2020.

In contrast, Amazon's $108.5 billion in net sales amounted to a 44% increase compared to the same quarter last year. Thanks largely to noncore income sources, net income surged 220% to $8.1 billion. That income led to a free cash flow of $26.4 billion over the last year, compared with about $691 million for MercadoLibre's previous four quarters.

Additionally, of the two companies, only Amazon published forward guidance, but neither would commit to a full-year outlook. Companies and analysts alike have expressed concerns that e-commerce growth will temporarily slow as countries emerge from the pandemic. However, with COVID-19 cases still on the rise in MercadoLibre's home region, that company faces more uncertainty on this front.

MercadoLibre's stock has also outperformed Amazon's over the last year. MercadoLibre increased by just under 65% over the previous 12 months versus Amazon's 33% increase during that period. Nonetheless, Amazon investors will pay less for growth. MercadoLibre sells for about 15 times sales, while Amazon's P/S ratio has fallen to about 4.

Data by YCharts.

MercadoLibre or Amazon?

Despite the higher expense, I believe MercadoLibre holds an edge for the long-term investor. This decision comes down to size. Amazon has already realized much of its potential, while MercadoLibre remains in an earlier stage of its development, meaning it can more easily log faster revenue growth.

Admittedly, Amazon might remain the superior company, and MercadoLibre might never match Amazon's size. Also, given its current growth rates and strong cash flows, Amazon could remain a more suitable choice for risk-averse investors. Nonetheless, given MercadoLibre's much faster increases in revenue, those with a higher risk tolerance should benefit more from its stock in the long term.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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On Wednesday (our time), we learned that US inflation numbers have come in at their highest level in more than a decade.

This naturally led to something of a market panic. Government bond yields spiked, for one. And although the US market indexes like the Dow Jones Industrial Average (INDEXDJX: .DJI) continue to trend pretty close to their all-time highs, interest-rate sensitive stocks in the US have cratered. And 'interest rate sensitive' shares tend to be those in the tech space.

This is evidenced by the Nasdaq Composite (INDEXNASDAQ: .IXIC) Index. While the Dow Jones remains above 34,000 points today, just 2% from its all-time high, the tech-heavy Nasdaq has taken a beating, down more than 7% from its own high that it reached last month, and down 5% over the past week alone.

ASX tech shares sold off on US interest rate concerns

Many US tech shares have been hit harder than that. Tesla Inc (NASDAQ: TSLA) is down 14% over the past week. MercadoLibre Inc (NASDAQ: MELI) is down around 11%. And Nio Inc – ADR (NYSE: NIO) has lost 16%.

Here in Australia, this panic seems to have spilled over into our own ASX tech shares. That's despite the Australian economy not facing the same kind of inflationary pressure. We have seen some of the ASX's most prominent tech shares smashed this week, including Afterpay Ltd (ASX: APT) and Xero Limited (ASX: XRO).

Why these shares? Well, because they operate with a lot of debt on their balance sheets, and are in 'growth mode'. This makes these companies very sensitive to interest rates.

Many of these companies and their like are also priced against their future cash flows, not what they are producing right now. That means that higher interest rates today make their future cash flows riskier. That's how some financial models work anyway.

But perhaps this is a giant buying opportunity.

A flash in the pan?

Let's look at the facts. Yes, the US inflation numbers that we saw this week were dramatic. But the US Federal Reserve doesn't seem too bothered. According to a report in the Australian Financial Review (AFR) yesterday, Fed vice chair Richard Clarida went on CNBC yesterday and attempted to calm the waters. Here's some of what he said:

Our baseline view is that inflation is going to be close to our long-run objective of 2 per cent, but we will be vigilant… I think what the data is telling us now is there is going to be some upward movement as we reopen, but that it won't persist over a long period of time, and that's my view as well.

Remember, the US Fed has previously all but committed to leaving interest rate at near-zero until at least 2022 and probably 2023. Even if inflation picks up. If the Fed does indeed follow this course of action, there is very little to fear in the tech sector.

It's higher interest rates, not just inflation itself, that tends to take the steam out of growth stocks, as we discussed before.

And if this latest round of US inflation is indeed just a 'blip' (the view Mr Clarida seems to think) rather than the start of a sustained rise, then there's nothing to worry about anyway for the tech sector.

If this turns out to be the case, then the market is arguably overreacting, and panic-selling tech shares. This does indeed point to a possible buying opportunity. There are a lot of moving parts to this situation, though, so keep vigilant and try and see the forest through the trees.

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The Nasdaq Composite (NASDAQ: .IXIC) was the stock market leader throughout most of 2020, powering ahead to much greater gains than its fellow major benchmarks. In particular, high-growth stocks that were able to hold up well despite the recessionary conditions in the broader economy stood out as big winners and rewarded their shareholders handsomely.

However, that narrative has changed lately. As of 11 a.m. EDT on Thursday, the Nasdaq was down another 1.7%, building on losses that have taken the index into correction territory even as other benchmarks were at or near record highs. Moreover, it seems as though the Nasdaq is falling even though Fed chair Jerome Powell told investors Wednesday that the economy appeared to be in solid shape.

There's one possible answer for this apparent disconnect. If investors are actually paying attention to a common way of valuing high-growth stocks, then the Fed's nonchalance about a key impact that a stronger economy could bring might explain the near-panic among shareholders of those stocks.

More damage in Nasdaq high-growth stocks

To be clear, Thursday's declines weren't monumental by themselves. Tesla Inc (NASDAQ: TSLA), for instance, was down just 3%. MercadoLibre Inc (NASDAQ: MELI) saw a 4% slump, while Zoom Video Communications Inc (NASDAQ: ZM) lost 3% and Atlassian Corporation (NASDAQ: TEAM) took a 5% hit.

However, those declines are just the latest in a series of drops for these stocks and many like them. Tesla is trading about 25% lower than its all-time highs from just a couple months ago. Zoom has given up roughly 40% from its record levels late last year. The move seems to reveal skepticism about whether the growth stocks have seen their shares rise too far, too quickly.

What the Fed has to do with high-growth stocks

It might seem as though the Federal Reserve's actions wouldn't necessarily have any impact on high-growth stocks. Investor interest in these companies has been so high that access to capital hasn't been a problem. Many of them have more than enough cash to make it through tough times in the future, and some of them are even cash-flow positive and can sustain themselves simply by maintaining current business levels.

However, the recent rise in interest rates due to inflationary fears has been troubling to investors. One potential impact is that if you value a company based on the discounted value of its future financial results, then higher interest rates make the performance that comes further into the future less valuable. With rates at zero, it almost doesn't matter from a valuation standpoint whether a company makes money now or five years from now, and low rates reward companies that defer smaller profits now in favour of larger profits later. That's been the basis for the huge run-ups in these stocks.

Higher interest rates reverse that trend. Suddenly, companies will get rewarded for producing results now rather than later. Valuations on companies that will take years to play out will take a hit.

Seize the opportunity

For long-term investors, that actually might be good news. It would signal that the Nasdaq stock price declines aren't about fears that companies aren't going to be able to live up to their full potential. Rather, it just reduces the value put on those same strong future results.

If you can get the same strong business at a discount, you should jump at the chance. That's the advantage long-term investors have, and now's the time to look closely at some of the stocks the rest of the market is giving up on.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Between the four major U.S. social media stocks -- Facebook (NASDAQ: FB), Twitter (NYSE: TWTR), Pinterest (NYSE: PINS), and Snapchat (NYSE: SNAP) -- which was the worst performer of 2020? 

If you guessed Facebook, you're right. Pinterest's 250% price rally in 2020 far outpaced Facebook's 31% gain. Facebook's returns also lagged the Global X Social Media Index ETF (NASDAQ: SOCL), which tracks over 30 companies involved in social media. In 2020, the ETF posted an annualized return of 78.4%. 

That said, it's too early to call Facebook an underperformer. This, after all, is a company that's consistently delivered double-digit percentage growth year after year. The big question is: Can this FANG stock get its bite back? I think so, and here are two reasons why.

1. Facebook executed incredibly well despite COVID-19

Ask corporate America what they thought about 2020 -- and many will tell you it was the worst year of the decade. The coronavirus devastated many companies in industries ranging from retail and energy to tourism.

Facebook had a pretty good year, though.

In 2020, Facebook's revenue rose 22% to $86 billion, driving a 58% surge in net profit to $29 billion. Monthly active users (MAU) also grew 12% year over year, to 2.8 billion.

Initially, there was concern that advertisers would cut back on spending, hurting Facebook's revenue. But those fears turned out to be unfounded. Forced to stay at home due to COVID-19, people spent more time on social media. To reach these users, businesses had little choice but to keep advertising on Facebook -- by far the largest social media network. In 2020, nearly a third of every digital advertising dollar went to Facebook, according to a report by the World Advertising Research Center (WARC).

These numbers validate the strength of Facebook's business model, which is anchored to the value it provides users. For one, the Facebook family of services -- including Facebook, Messenger, Instagram, and WhatsApp -- keeps people connected. But Facebook provides much more than "just" communication tools. Its apps are also an avenue for news, entertainment, and business. All these features have made Facebook simply indispensable -- and more so amid the pandemic.

Facebook made a few smart moves in 2020. One of them was a renewed push into e-commerce, in partnership with Shopify (NYSE: SHOP). With the launch of Facebook Shops and other e-commerce tools, both companies will make it easier for Facebook's users to grow their online businesses. 

This gives users yet another reason to spend time on Facebook. And if successful, Facebook's e-commerce initiatives could improve its user monetization.

2. Investors aren't very excited about Facebook

As the pandemic ravaged global economies, many small businesses were forced to shut down. Millions of Main Street Americans have lost their jobs.

Still, Wall Street had one of its best years ever. The Nasdaq Composite (NASDAQINDEX: ^IXIC) rose 44% in 2020 -- its best performance in 11 years, according to MarketWatch.

Shares of Shopify and MercadoLibre almost tripled in 2020 as they rode on the tailwinds caused by the pandemic. But Facebook -- which benefited from the pandemic and delivered solid revenue and profit growth -- rose a relatively measly 31%. 

I think investors haven't neglected Facebook's strong execution in 2020. Instead, they've been rattled by repeated calls to break up Facebook, as well as its very public clash with Apple. That has taken some glitter off Facebook, resulting in it trading at a valuation of less than nine times 2020 revenue.

While that appears reasonable, consider the astronomical valuations enjoyed by trendier tech companies like Snowflake (NYSE: SNOW). Snowflake trades at a whopping 277 times 2020 sales.

Why Facebook is a buy now

Facebook shines when it comes to consistency and growth. Between 2016 and 2020, revenue rose at an impressive compound annual growth rate of 33%. 

In coming years, Facebook will likely keep growing at double-digit rates as it unlocks the value of Instagram and WhatsApp. Facebook could also deliver upside surprises with newer ventures, including the Oculus virtual reality platform and payment services.

In the near term, there's a risk of a pullback -- given Facebook shares have almost doubled from their March 2020 lows. But that shouldn't deter investors with a five-year time horizon. Facebook is here to stay, and it will only get bigger in years to come.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post 2 reasons Facebook stock is a buy appeared first on The Motley Fool Australia.

PayPal co-founder and early Facebook investor Peter Thiel told Forbes this month that many shares are way overvalued and it would take years for those companies to grow into their valuations.

"But I keep thinking the other side of it is that one should think of COVID and the crisis of this year as this giant watershed moment, where this is the first year of the 21st century," he said.

"This is the year in which the new economy is actually replacing the old economy."

And Sydney portfolio manager Michael Frazis couldn't agree more.

"For all the trials and tragedies of 2020, this was a year when all kinds of technology accelerated," he said in a memo to Frazis Capital clients.

"This was a year where those taking extraordinary risks to advance the human race were richly rewarded, and for that we can all be thankful."

Be on the right side of history

He acknowledged investing in new trends and technological shifts is "often uncomfortable", but investors want to be on the right side of history.

"Balance sheets and income statements are messy, and the extraordinarily talented people that build new businesses are often odd," he said.

"But it's far riskier, in our opinion, to be on the other side of these shifts. Simply look at the performance of Tesla Inc (NASDAQ: TSLA) and Carvana Co (NYSE: CVNA) versus the auto industry; Afterpay Ltd (ASX: APT) and Square Inc (NYSE: SQ) versus global banks; and Shopify Inc (NYSE: SHOP), Mercadolibre Inc (NASDAQ: MELI) and Sea Ltd (NYSE: SE) versus traditional retailers."

Sectors for the new century

Frazis pointed to the extraordinary science behind the development of COVID-19 vaccines as proof that the world has now ticked over to a new era.

"Biology has always had data at its core, but in 2020 this data science reached new heights," he said.

"Chinese scientists posted the genetic code of the coronavirus online, and within days Moderna Inc (NASDAQ: MRNA) developed the first of what will likely be many mRNA vaccines without any access to the virus itself. Truly science fiction stuff."

Biological research received a lot of government and investment funding this year, according to Frazis.

"It has never been cooler to be a biological scientist. Talent and capital is a thrilling combination. The next decade should be a good one for the life sciences."

Non-government space exploration also made tremendous progress in 2020, said Frazis, making private travel out of earth a possibility this century.

"It was also a good year for space, with Virgin Galactic Holdings Inc (NYSE: SPCE) (which we own) and SpaceX (which sadly we can't) both laying down serious milestones in what will be one of the future's largest industries."

He also picked the hydrogen fuel industry as a winner in the coming years.

"In 2020 the use of hydrogen in transportation reached critical levels, much to the benefit of Plug Power Inc (NASDAQ: PLUG), whose fuel cells now transport [about] 30% of US retail food and groceries."

Frazis Capital has returned more than 92% net for the year to date, according to the portfolio manager.

Frazis told his clients last month that he was calling the peak of "red hot tech stocks" and would be selling them down.

"Longer term yields have begun to rise, tech valuations are at record highs, and we believe a period of serious multiple compression has already begun."

The post How the 21st century actually started in 2020 appeared first on The Motley Fool Australia.

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In this edition, Frazis Capital Partners portfolio manager Michael Frazis tells us how he picks the shares for his fund and why he ignores EBITDA and balance sheets.

The Motley Fool: What's your fund's philosophy?

Michael Frazis: We're looking for companies with two main characteristics. They are explosive growth and true customer love.

All the best investment stories over the last two decades – companies like Netflix Inc (NASDAQ: NFLX), Apple Inc (NASDAQ: AAPL), early days of Amazon.com, Inc (NASDAQ: AMZN), Tesla Inc (NASDAQ: TSLA) and in Australia, Afterpay Ltd (ASX: APT) – they always had these characteristics. This really intense customer base and explosive growth. 

Those two things are really important. We're not interested in a company that we think is going to be the next big thing. We want to see companies that are truly delivering that are twice the size year-on-year, that are adding users, adding revenue per new user and adding revenues every single day.

The interesting thing about these companies is they're some of the most heavily shorted stocks in the market. There's a huge amount of professional scepticism.

There's a very good reason for that and that's basically because these companies have that rare issue of having immense demand. Most companies, the issue is sales…. These companies have such compelling product offering and such loyal fan bases that they don't need to do that. The challenge is actually investing to meet that growth.

If you look at their income statement and their balance sheet, they look terrible. So people who invest on EBITDA, PE, cash flow, or really any traditional metric, will miss all of these companies. 

The problem is, if you look at their income statement, you'd just see losses. If they're clever, they'll manage it to zero. You really cannot use those profit metrics to measure these companies. 

Actually, EBITDA was one of the original innovations here. The thing with EBITDA was that you would separate the profit of the company from the amount that they're spending on investment… If somebody invested a bunch of money in buying a new factory, there's no point in marking that against them – it's a positive. You'll find the underlying profitability. 

This is basically exactly the same thing. I mean, in this case, it's not capex. Your capex is sales and marketing, which is above the EBITDA line.

Software companies are very much like this. They have very little tangible assets, very little book value. Think about something like Xero Limited (ASX: XRO). If they add a user, that user will be paying $30 a month of very high-minded revenue, that's growing with the size of their business indefinitely into the future.

But what is the impact on the financial statements of that customer? All you would see is the sales and marketing spends put together.

So anybody that screens on profitability will miss not just Xero, but every other fast growing software company that can invest money to get that multiplied five to 10 times.

If you look at the balance sheet, there's no line item for customer value. So anybody who screens on value metrics is systematically going to miss every single fast-growing software company. And it's not just those. It's any company that can invest heavily in sales and marketing and get an exceptional return on capital.

These companies… they didn't exist six years ago and they went from zero to 25, 50, 100, 200, 400 million revenue. Now they're trading on many billions of dollars of equity now, but how did they do that? They did it this way.

They had a product that was so good, they could invest in marketing and double their revenues year-on-year and they did so again and again and again.

So that's how we look at things. We want true customer love. We want explosive growth. We don't even use these traditional metrics that other people use. It's been extraordinarily effective. I think we've got 18 things that have tripled or more from when we first bought them. Got a number of 4x or 5x opportunities. 

We've been able to systematically find these things all using the same simple framework.

Motley: Is the strategy risky? Say interest rates go up?

Michael: Of course there's risks. We are equity investors so we're comfortable with equity market risk. We're long only. We don't hedge. We don't short. We think this year was a case in point of why you don't do that. You can lose so much money by being short at the wrong time, or even moving to cash at the wrong time and selling out on your stocks. It's much better to stay invested. 

One of the ways we mitigate the risk is by having such an exceptionally high growth rate in our portfolio. So you've been seeing interest rates rising and multiples dropping 30%, 40% – but that'd be a one-off drop. As I mentioned, our companies are 30%, 40% bigger every 6 months.

Look at us now. We're probably up 60% current year to date, net. We can weather a 20% drop. 

We've been able to achieve that because we were long in February. We're long in February, it looked like the world was kind of ending. Both professionals and very smart people – Magellan, Buffett – rock stars of the financial world were selling. 

But we took a view that we're just going to stay long and ride it out, and that proved correct.

We certainly made some mistakes. But every time we sold something, we bought something.

Motley: Considering your fund's strategy, would you say your clientele is reasonably young?

Michael: I'd say we're probably younger than most. For some people we're the only people that invested. But there's a lot of much older people, with self-made super, who are looking at stocks and realising their portfolios have gone sideways for three years now. 

They listen to all these smart people – these well-renowned investors came out and said Afterpay was a sell, Tesla was a short, sell Netflix. And they said it loudly. Then everybody's seeing these stocks go up 5, 10 times. 

So I think a lot of people, including some much older people approaching retirement or even are in retirement, are thinking, "Wow. The professional investment community in many cases got these stocks wrong and we want to be on the right side of change and the right side of technology." 

It's not like they're giving us their entire wealth. It might just be a small allocation, but it's an extremely important allocation for them, because we'll probably be the only growth stocks they own.

Buying and selling 

Motley: What do you look at closely when considering buying a stock?

Michael: Revenue growth is really important to us. Something that's really changing the world, if it's truly special, twice as many people should be using it today as they were last year. And if something is that good and you can prove it, there's a good chance many more people will be using it next year as well. 

We talked about not looking at EBITDA and cash flows. We look very closely at things like web traffic, Google Trends, alternative data sources – there's many ways of finding out how the revenue is tracking or estimating how revenue's tracking using public information. We think that is the best guide because we really want to find these special companies that people truly love.

I think with these growth companies, it's generally best if they don't borrow. The perfect software company should have a bed of cash and then just invest every dollar that comes in and try not to invest more.

We're looking for that special customer thing that people absolutely love and can't get enough of. So the ability for Elon Musk, for example, to sell hundreds of thousands of pre-orders with one presentation – that is what we're looking for. 

Tesla went from a few thousand cars a year to… I think they did 367,000 in 2019 and they'll be on track for half a million shortly. They increased production 50 times. All the short sellers who were looking at the balance sheet and cash flow were shorting a company that increased in size by 50 times. 

One thing's for sure – they always have their customers' love. This girl was getting up and selling cars just with the presentation. There is no marketing, as a principle. No direct marketing anyway.

Now, look what happened. There's been an absolute dead zone for autos around the world, but Tesla has created hundreds of billions of dollars of value. 

You could argue, how is Tesla worth more than all these other cars? If you want a jeep or SUV, you can buy a Jeep, you can buy a Toyota. There's probably 20 companies in Australia that will sell you a medium-sized SUV. They're all competing on price, features, reliable. It's horrible.

Tesla's got that X factor. They're expensive cars – they'll charge a premium. There's a good chance that they do to autos what Apple did to the smartphone industry, where everybody else has a huge market share, but a significant share of the gross profit dollars go to Tesla.

What we want Tesla to do is then spend that. We'd want them to invest that and go from 500,000 cars into the millions.

Motley: What triggers you to sell a share?

Michael: We want a portfolio of winners. We want a very high organic growth rate, so we will sell out of things once their growth rate drops to 20 to 30%, which most people consider high, but it's actually quite low for the kind of companies that we invest in.

I'll give you an example where we made some changes. In April, we basically decided that we're only going to invest on companies that were visibly accelerating in that environment. So we weren't buying cruise ships, we weren't buying real estate. We weren't bottom feeding. 

We were buying companies like Sea Ltd (NYSE: SE) and Mercadolibre Inc (NASDAQ: MELI) – e-commerce providers around the world. Companies that were visibly accelerating. That proved more successful than we could have hoped. Many of those companies tripled from buying them only six months ago. 

The interesting thing about that is, that was the right strategy before as well. The best returns in previous years came from companies that doubled, tripled, quadrupled in size, that were winning. So our strategy is, stick to winners. 

It's a really clear exit and sell signal. If it's not the winner, we will exit and not look back.

What's coming up?

Motley: Where do you think the world is heading at the moment?

Michael: Global GDP is flat and it will probably grow a little bit. The more developed the country generally, the flatter GDP will be, so there's not that much overall growth. The population is only growing very slowly. There's not that much underlying basis for growth.

However, there are very significant sectors in the economy – notably software, e-commerce, digital health, life sciences. There are some sectors that are absolutely exploding. These sectors themselves are growing incredibly fast, but that's not happening in a vacuum.

So we think that's actually going to continue. Old industries are going to stagnate – more dollars will go to new industries. It's critically important now to be invested in fast growing, well-executing companies.

We're as negative as everybody else. There's been genuine wealth destruction here. The six months in Melbourne that it's been locked down, we will not get those months back. Those earnings in tax dollars and profit that businesses would have made, that income that people would have made that have lost their jobs, that's gone. It's not coming back. There has been genuine wealth destruction.

We actually think the outlook for the average company is probably modest to bleak. It's not pretty. 

What could be interesting is if you could see the winners actually change. If you can imagine in 1 to 2 years' time, travel will have their best year on record. I think many people would actually agree with that statement. 

You think about where those stocks are trading, you think well, maybe there is some advantage in getting ahead of the curve. We haven't done that, but it's the sort of thing you think about. 

Overrated and underrated shares

Motley: What's your most underrated stock at the moment?

Michael: An interesting one is Redbubble Ltd (ASX: RBL).

It's had a pretty big run. We've been buying. It's growing over 100% and I think it was trading at 2 times sales. Two to 3 times sales. I think now it'd be on the higher end of that. 

You've got a 100% e-commerce (company) with net cash, it's profitable and trading on 2.5 times sales. An equivalent company in the US is Etsy Inc (NASDAQ: ETSY), trading at 12 times sales. 

So there's huge scope for this company to continue to execute and also to increase materially and multiple. So I wouldn't say it's totally underrated because there are people buying it, that's for sure, but that is definitely one with potential. And it's also quite topical. It's quite interesting.

Motley: In your investors' newsletter today you called it "a two-sided marketplace". What did you mean by that?

Michael: They had to attract artists to the platform, but they also had to attract the users to buy the products. It's very hard to do that because you need to get them both buying at once. That's why I called it the Holy Grail. It's very difficult to do, but once you've got it, they're very valuable.

Motley: What do you think is the most overrated stock at the moment?

Michael: I don't mean overrated, but I do say one of the things we are very careful is to make sure we stick to number ones. 

I'll give you two examples – buy now, pay later and the deregulation of US gambling. There's two green-field opportunities. Everybody's going bananas. Everybody's growing extremely fast.

But the end state might not be very pretty. It'll be a huge industry, but there'll just be a few key players and everybody else will just have to buy market share by offering incentives or being extremely competitive. 

Now, it's great. Everybody's growing fast, but the end state is not good. So we made really good money out of Pointsbet Holdings Ltd (ASX: PBH) but we did sell out.

Also we decided we don't want to invest in gambling because everything else we do is so wholesome.

Buy now, pay later is also interesting because everybody's still growing. But you do wonder with the fifth buy now, pay later [company] – what's really their long-term role? It might not be pretty for those that aren't number one, two or three.

Looking back

Motley: Which stock are you most proud of from a past purchase?

Michael: There's a couple. I would say one I was most proud of was Carvana Co (NYSE: CVNA). We bought that at 36 bucks. 

It's now over $200, but we bought it when it was trending down and short interest in the free float was 70%. There were short reports, many short reports, and global investment banks had sales on it. So we had to go against all of that. 

Pinduoduo Inc – ADR (NASDAQ: PDD) is another one. We bought it not very well, I think it was $24, $25. Then it dropped down to $18, $19, and then we bought heavily. Now it's above $80, a year-and-a-half later. 

Again, you had extensive short reports and very negative coverage from some investment banks. So in those cases we had to go when the market was moving against us. We bought, we had to go against short sellers, investment researchers, and people who actually had far better access to the company in the region that we did. 

They're the ones that are the most enjoyable.

Motley: Has COVID-19 changed or altered your investment methods at all?

Michael: Maybe it would have been about six months before COVID-19, we decided to take out all of our shorts.

Six months later, you then had the worst selloff. In England, which has the record, the worst sell-off was the South Sea bubble 300 years earlier.

To think that having taken off shorts, gone long only right before one of the most epic market crashes in history, you'd think that would be a bad thing, but it ended up being our best year.

I think that really validated our shift in strategy. You can look really stupid in the short term, but in the long term, sticking to your guns, being really steady in those moments really pays off. 

So I think it will guide how we invest the rest of our lives. Everybody who experienced that will probably guide how they invest the rest of their lives.

It really reiterates those very old lessons. The old lessons of being long term – don't panic. Be the net buyer, not a net seller when things go down.

The post How this fund manager is 60% UP in the year of COVID-19 appeared first on The Motley Fool Australia.

Careful consideration must be given to ASX shares you plan to hold forever. In my opinion, these need to possess some crucial characteristics:

• A wide moat – This is basically a competitive advantage such as a network effect, first-mover advantage, high switching costs or high barriers to entry.
• Optionality – The ability to diversify and pivot the business to growth markets.
• Financial fortitude – Having a strong balance sheet with lots of cash and little debt.

On that note, here are five ASX shares in my own portfolio that I plan on holding on to forever.

5 ASX shares I plan on never selling 

BetaShares Asia Technology Tigers ETF (ASX: ASIA)

ASIA is on my list because it provides market capitalisation weighted exposure to a geographic location that will be an economic powerhouse long into the future. This diversification helps to balance my portfolio, whilst giving me access to fast growing innovative stocks such as Alibaba and Tencent.

Mercadolibre Inc (NASDAQ: MELI)

Mercadolibre isn't technically an ASX share. However, it is one of my highest conviction holdings. Often referred to as the eBay Inc (NASDAQ: EBAY) of Latin America, the stock has grown far beyond that. The eCommerce company now has a massive payment processing network called Mercado Pago, that provides another huge growth driver for the stock.

This optionality, when combined with the share's top dog status, should provide market beating returns well into the future.

Nanosonics Ltd (ASX: NAN)

Nanosonics is a leader in the disinfection of ultrasound probes. This ASX share has been a long-term market beater and I think this will continue. Operating with the 'razor and blade' business model, Nanosonics is successfully growing its installed base of trophon® and trophon® 2 machines. Nanosonics can then sell more high margin consumables products and boost profitability.

ResMed Inc (ASX: RMD)

ResMed is a leader in the treatment of sleep apnea. Sleep apnea is a hugely underdiagnosed condition that can have significant impacts on a sufferer's quality of life and health. As the company and physicians continue to further education regarding the condition, I can see a greater adoption of ResMed's products.

Furthermore, the company's move into data and internet connected devices should provide optionality in the future.

Xero Limited (ASX: XRO)

If you run a small or medium sized business, you've probably heard of Xero. Xero provides its customers with a best-in-class cloud accounting solution. Its customers have primarily been in Australia and New Zealand, however the business is also expanding into the United Kingdom and the United States. 

I believe the digitisation of tax and accounting reporting across the globe is a nice tailwind that Xero can ride to significantly increase profitability. Another reason I love this ASX share is that it has a third-party marketplace for products that work with Xero. Apple, Inc (NASDAQ: AAPL) and Atlassian Corporation PLC (NASDAQ: TEAM) are great examples of this high margin revenue.

The post 5 ASX shares I will never sell appeared first on The Motley Fool Australia.

The second quarter was an uncharacteristic one for PayPal (NASDAQ: PYPL). The mobile payment provider delivered a solid quarter but lowered its full-year forecast, which spooked some fainthearted investors, who ultimately raced for the exits. Those who fled may have done so prematurely, as the longer term looks bright for PayPal.

Let's recap the company's second quarter, look at several factors that will play into the third-quarter results, and see what investors should expect when PayPal reports earnings after the market close on Wednesday, October 23.

Great quarter

PayPal reported Q2 revenue of $4.31 billion, up 12% year over year, slightly below analysts' consensus estimates but near the midpoint of management's guidance. The company generated adjusted earnings per share of $0.86, up 47% compared to the prior-year quarter and higher than the $0.70 forecast. This bottom-line result included a $0.14 per-share benefit from PayPal's portfolio of strategic investments (more on that below).

The payment processor added 9 million net new active accounts during the quarter, an increase of 17% year over year, closing out the quarter with 286 million customer accounts, up 28%. Engagement also improved, as transactions per active account over the previous 12 months climbed to 39, a 9% increase.

Finally, payment transactions soared to 3 billion, up 28% year over year, while total payment volume of $172 billion jumped 24%.

Some unanticipated challenges

PayPal lowered its full-year forecast, citing several factors that played into that decision.

The company entered into a commercial agreement and a $750 million strategic investment in MercadoLibre (NASDAQ: MELI), which included the integration of PayPal into the Latin American e-commerce providers marketplace, while also linking  their respective customers, allowing for peer-to-peer (P2P) payments and international remittances. PayPal saw the opportunity to deploy even greater capabilities than it originally envisioned, expanding the project beyond its initial scope. This resulted in unexpected delays but will inevitably yield greater benefits down the road. 

Additionally, PayPal's original guidance included the implementation of a number of price changes that the company decided to delay. On the conference call, PayPal CFO John Rainey pointed out that while the timing shifted by a few quarters, PayPal expected to "realize the full 100% of the benefit" from those changes in 2020.

Finally, the strong U.S. dollar will continue to act as a headwind regarding foreign-currency exchange rates and have a greater negative impact on revenue in the second half than PayPal previously expected.

The volatile stock market isn't helping

PayPal has invested in several other companies, and under generally accepted accounting principles (GAAP) rules, is required to include the changes in the value of these positions in its bottom-line results. This portfolio includes a $500 million investment in Uber Technologies and the aforementioned investment in MercadoLibre. The portfolio also includes an investment in privately held Viva Republica, a Korean fintech start-up, and the owner of the popular P2P payments app Toss.

When PayPal reported its Q2 earnings, the company said it expected to realize a $0.03 gain that was included in its Q3 guidance. Due to stock market volatility, the values of PayPal's strategic investment portfolio declined by $228 million as its stakes in Uber and MercadoLibre fell by 34% and 10%, respectively, during the third quarter. This will result in a $0.15 loss per share, rather than the 3% gain PayPal forecast. Investors should be prepared for this hit to the bottom line.

What the quarter could hold

For the upcoming third quarter, PayPal is guiding for revenue in a range of $4.33 billion to $4.38 billion, which would represent growth of between 18% and 19%. Analysts' consensus estimates are sitting near the midpoint of PayPal's range, at $4.35 billion. 

On the profitability front, PayPal forecast adjusted earnings per share in a range of $0.69 to $0.71. Keep in mind that this estimate doesn't include the unexpected decline in its strategic investment portfolio. For their part, analysts' estimates are clocking in at $0.65.

With all the moving parts that will make up the quarter, it's important for investors to focus on PayPal's operational performance -- which has been stellar -- and not get caught up in the additional "noise" that will accompany its financial results.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Several wildcards will impact PayPal's Q3 earnings appeared first on The Motley Fool Australia.

The world is moving away from cash and toward digital payments, and PayPal Holdings' (NASDAQ: PYPL) share price has been rising in the process. The stock has ridden this consumer sea change to a more than 200% gain from November 2017 to July 2019, as compared with the S&P 500's gain of 35%. 

Second-quarter earnings showed lower full-year revenue than had been forecast ($4.32 billion actual, vs. $4.33 billion predicted), and the stock price fell 15% on the news. Management blamed a delay in the launch of new services with strategic partners for the decline. Currency exchange effects have also played a significant negative role.

You can get an easy read on PayPal's health by looking at just a few metrics, all of which were up year-over-year: payment transactions (up 9.2%), active accounts (17.2%), total payment volume (23.6%), and engagement, or the number of app downloads (27.8%).  

Image Source: YCharts.

So is now the right time to buy?

If you're a long-term investor, you can be rest assured that PayPal is a stable business and that its stock price will rise over the long term. One of the main drivers for the company has been Venmo, a peer-to-peer payments app that's highly popular with young adults. Venmo, which offers an easy way to transfer money with a Facebook-like feed, enjoyed torrid growth in the second quarter, with a total payment increase of 70% year over year to $24 billion. That said, Venmo is not yet profitable, as PayPal is just beginning to monetize the platform. It does provide a very strong user base, which is a path to future growth. 

The balance sheet shows $1.04 billion in free cash flow and $10.7 billion in cash and investments, two of which include $500 million in Uber Technologies (NYSE: UBER) and $750 million in a partnership with Latin American company MercadoLibre (NASDAQ: MELI). Both of these partnerships work in PayPal's favor by providing access to more than 300 million users across 60 countries. However, Uber's inability to make money cost PayPal $228 million in the quarter (a drop of 34%). The value of the MercadoLibre investment dropped 10%. 

PayPal's long-term fundamentals are intact, and there is huge room for growth. This short-term dip in price -- mostly due to temporary factors -- looks like a good opportunity for investors. In terms of financial performance, growth, and users, the business remains as strong as ever, with a gross profit margin of 45.1%, operating margin of 14.1%, and net profit margin of 15.4%. Over the next year, analysts expect the stock to move to $128 from its current $102.

PayPal will continue to benefit from the rise in online shopping, with impressive increases in the number of transactions and new accounts just over the past year. Competitive forces may move the stock price from moment to moment, but over the long term its future looks clear. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Is now the right time to invest in PayPal? appeared first on The Motley Fool Australia.