Whenever I review my portfolio, I’m hit with a fresh sense of how much I need to improve as an investor. My account is littered with duds I shouldn’t have ever purchased. Moreover, I’ve missed out on plenty of market winners that I diligently researched, but never actually bought.
My track record clearly needs to improve. But be that as it may, I find solace in one wonderful decision: Making MercadoLibre (MELI 2.57%) my top holding back in 2022. It has been a portfolio-saving investment, and one that will continue to do the heavy lifting for me for years to come.
It reminds me of one of Warren Buffett’s best acquisitions, which was See’s Candies. According to his late right-hand man Charlie Munger, the pair almost didn’t buy the iconic candy company due to a relatively small gap between what they wanted to pay and what the owner wanted to sell for. But in Munger’s words, “We made a wonderful decision because we were just barely smart enough to make a no-brainer.”
That’s how I feel: Just barely smart enough to have invested in a no-brainer stock such as MercadoLibre. And I didn’t just buy it — I made it my largest holding from the get-go. Modern portfolio theory might tell me it’s past time for me to trim my position. But I hope that I can stay barely smart enough to not sell any MercadoLibre stock for a long time. Here’s why.
Why MercadoLibre is a no-brainer stock
MercadoLibre is a hard company to pin down: In Latin America, it’s a logistics network, an e-commerce platform for first-party and third-party sales, an advertising business, a payments processor, and more. And it operates in multiple countries. But almost every part of the business is growing at a double-digit percentage rate in all geographies.
In 2024, its revenue rose nearly 38% to $21 billion. This is part of what makes the stock a no-brainer buy. Studies have shown that the top stocks to buy and hold for the long term are consistently those that grow their revenue at above-average rates.
That said, MercadoLibre isn’t a top stock to buy today because of how much it’s grown its top line in the past but rather because of how much it could keep growing in the future.
According to research company Statista, e-commerce in Latin America is expected to grow at a 9% compound annual rate from now through the end of the decade. Contributing to that rise will be gains in the e-commerce penetration rate — i.e., the percentage of people in a region who shop online. Latin America’s penetration rate is roughly 58% today, but is expected to hit 67% in 2029.
In other words, millions of people in Latin America are expected to become new e-commerce users in the next five years. MercadoLibre could nearly double the size of its e-commerce business by simply maintaining its current market share. But the opportunity is even larger than that because many of these new e-commerce adopters will be using other digital services as well, and MercadoLibre is building an ecosystem of services. Its entire platform can benefit as those millions of new users come online.
There’s so much more that could be said, but suffice it to say that MercadoLibre’s torrid growth pace is sustainable.
The other side of the coin is that MercadoLibre is growing profitably, which makes it financially stronger over time. As the chart below shows, the company’s operating profit has surged at a faster pace than its revenue has grown over the last three years.
MELI Revenue (TTM) data by YCharts.
MercadoLibre stock has already made substantial long-term gains. However, economic conditions in Latin America are favorable for its ongoing profitable growth. That makes the future quite bright for this business.
Why I’m not selling
I’ll refrain from disclosing just how big of a position MercadoLibre stock is within my portfolio. But most financial professionals would likely tell me that I ought to rebalance my portfolio now by selling some of my position in MercadoLibre and investing the proceeds in other stocks. If MercadoLibre stock crashes, I’ll take a huge financial hit.
I don’t wish to disparage the pros — their job is to give the advice that applies to most people most of the time. And it’s often a bad idea to have too much of your portfolio concentrated in a single asset.
However, as investing great Peter Lynch said, “You want to let the winners run.” That also happens to be a core tenet of The Motley Fool’s investing philosophy. The truth is, my portfolio is littered with losers that threaten to drag down my long-term returns. But by holding on to my few exceptional winners, such as MercadoLibre, I aim to outperform the stock market’s average results over time.
Jon Quast has positions in MercadoLibre. The Motley Fool has positions in and recommends MercadoLibre. The Motley Fool has a disclosure policy.
