Personal Finance

My Top Stock to Buy in January Is...


The anchoring bias is a pretty cruel mechanism. In investing, this happens when we "anchor" to the price of a stock at a given time -- and use that as a reference point out into the future. Last year, I missed out buying my top stock to buy in January because Motley Fool trading rules prohibited me from buying shares. When my window opened up, I simply forgot to act.

This January, don't make the same mistake!


Data source: HumanProgress

Currently, Brazil, Argentina, Venezuela, and Mexico are the most important countries for the company's bottom line. All four have higher Internet-penetration rates than the regions they are in -- which means that as more citizens come online in the region's other countries, the opportunity will only grow.

It isn't that expensive

Go to any finance site, and it will tell you that Mercadolibre is expensive. Some list the price-to-earnings ratio as high as 63. But there's much more to it than that. For starters, the company is trading for just 30 times free cash flow -- which I consider to be a more-than-reasonable price tag for a company growing so quickly.

But more importantly, currency headwinds are really holding things back. Consider how each of the four aforementioned countries' Marketplace revenues performed during 2015 for Mercadolibre, in local currencies versus U.S. dollars -- which is how the company reports results.

Country Revenue Growth (Local Currency) Revenue Growth (Dollars) Percentage Point Difference
Brazil 23% (9.1%) (32.1)
Argentina 76.6% 53.3% (23.3)
Venezuela 298.2% (29.4%) (327.6)
Mexico 8.4% (7.7%) (16.1)

Data source: SEC filings.

No one can tell you with any certainty where foreign exchange rates will head in the future, but I like to think that when a company is held down by such headwinds, it's a buying opportunity. In the long run -- I'm talking decades, here -- I like to believe that such changes tend to smooth out.

I don't know if that will be the case, here, but I'm willing to put my money behind a company that might look expensive, but is actually very cheap for those with a long enough time horizon.

That, plus the three other benefits -- the powerful network effects, management with skin in the game, and citizens who are rapidly going online -- give me confidence in declaring that Mercadolibre is my stock to buy for January. And lest you think these are empty words, recent purchases have pushed this company up to 3.5% of my family's real-life holdings.

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Brian Stoffel owns shares of MercadoLibre. The Motley Fool owns shares of and recommends MercadoLibre. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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