We recently compiled a list of the 10 Best Consumer Discretionary Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where MercadoLibre, Inc. (NASDAQ:MELI) stands against the other consumer discretionary stocks.
Many experts and analysts are concerned about a slowdown in consumer spending. However, reports show that consumer behavior is changing rather than slowing down. According to a report by Colliers Retail Market Intelligence, retail foot traffic rose by 4.4% in June, indicating strong consumer activity despite flat overall sales.
While furniture and home improvement stores saw declines due to reduced monumental purchases and a sluggish housing market, grocery stores, and apparel retailers performed better. Grocery sales grew by 1.7%, with a nearly 5% increase in foot traffic, as consumers managed their budgets despite cutting costs. Apparel sales also increased by 3.8%, driven by early back-to-school shopping and wardrobe updates, leading to an 8.3% rise in foot traffic.
In July, consumer spending saw a modest increase compared to June, with gains across 10 of 12 retail categories, as reported by the CNBC/National Retail Federation (NRF) Retail Monitor. Retail sales, excluding autos and gas, rose by 0.7% month-over-month, slightly up from June’s 0.5%, but the year-over-year growth slowed to 0.9%, down from 3.4% in June.
Core retail, which excludes restaurants, saw a 1% monthly increase. Significant sector performances included a 3.4% rise in gas station sales and a 2.1% increase in restaurant spending month-over-month. Conversely, the healthcare, personal care, and garden supplies sectors experienced slight declines.
June and July data together indicate that consumer spending remains resilient, supported by strong household finances and a strong job market. While some sectors, particularly furniture and home improvement, are struggling due to reduced consumer confidence and a slow housing market, other categories are performing well.
The data suggests that consumers are still willing to spend, especially on essential and seasonal items, though they may be more cautious with larger purchases. Despite some areas of decline, the overall retail environment appears stable, with consumers continuing to spend where they find value, which indicates a cautiously optimistic outlook for the remainder of 2024.
Latest Updates on Interest Rates and Potential Effects On Consumer Spending
In the July meeting, Fed Chair Jerome Powell highlighted the Fed’s ongoing focus on achieving maximum employment and stable prices. He noted significant progress in the economy, with inflation dropping from 7% to 2.5% and a balanced labor market with low unemployment at 4.1%. The Fed chose to keep interest rates steady within the 5.25% to 5.5% range and continue to reduce its securities holdings to maintain a restrictive stance, which is aimed at aligning demand with supply and reducing inflationary pressures.
Powell mentioned that while inflation has eased, the Fed is not yet ready to lower rates and requires more consistent positive data before making such a move, possibly as early as September. According to the CME Fed Watch Tool, all the experts are expecting cuts in September. 50.5% of the experts predict a 25 basis points (bps) reduction in the interest rates while 49.5% expect a 50 bps cut.
Rate cuts generally have a positive effect on consumer spending. When interest rates are lowered, borrowing becomes cheaper, which could lead to increased consumer borrowing and spending. This increased affordability can boost consumer confidence and promote spending on discretionary items. That’s a good set up for discretionary stocks, and with that, let’s look at the 10 best consumer discretionary stocks to buy according to hedge funds.
Our Methodology
For this article, we used the Finviz stock screener to identify over 50 large-cap consumer discretionary stocks then narrowed our list to 10 stocks that were most widely held by institutional investors as of Q1, and listed the stocks in ascending order of hedge fund sentiment.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A customer using their phone to access an online commerce platform.
MercadoLibre, Inc. (NASDAQ:MELI)
Number of Hedge Fund Holders: 79
MercadoLibre, Inc. (NASDAQ:MELI) is a Latin American e-commerce giant with over 100 million unique users across 18 countries as of the second quarter of 2024. The company is headquartered in Uruguay. Apart from e-commerce, the company also has significant fintech operations and provides logistics, retail ads, online storefront solutions, and classified services.
On August 1, MercadoLibre (NASDAQ:MELI) posted stronger-than-expected results for the second quarter. It reported $5.07 billion in revenues, up over 41%, and its net income increased by over 100% year-over-year to $531 million. On a per-share basis, the company’s earnings of $10.48 topped analyst estimates by $2.
MercadoLibre’s (NASDAQ:MELI) e-commerce platform has seen significant traction, particularly in Brazil, where gross merchandise value (GMV) grew by 36%, and in Mexico, where the company continues to gain market share. In Mexico, its revenue saw a 66% growth.
MercadoLibre’s (NASDAQ:MELI) fintech arm, Mercado Pago surpassed 50 million monthly active users for the first time, which highlights strong user engagement and a thriving credit business that saw total payment volume (TPV) grow 3x year-over-year.
MercadoLibre’s (NASDAQ:MELI) introduction of innovative logistics solutions, such as the launch of a U.S.-based fulfillment center and the deployment of robotics in Brazil, further strengthened the company’s competitive edge by improving efficiency and expanding service offerings.
On August 8, Bank of America raised its price target for MercadoLibre (NASDAQ:MELI) from $2,000 to $2,250 while maintaining a Buy rating on the stock. This adjustment came in response to stronger-than-expected GMV in the second quarter, which outperformed market expectations.
The analyst highlighted that MercadoLibre’s (NASDAQ:MELI) ability to consolidate its market position, improve logistics and shipping, implement strategic pricing, and introduce multiple user experience improvements is driving this elevated GMV growth. As a result, the firm revised its long-term GMV compound annual growth from 16% to 21%, reflecting confidence in the company’s sustained growth trajectory.
In Q1 of 2024, MercadoLibre’s (NASDAQ:MELI) shares were held by 79 hedge funds, valued at $4.74 billion. This makes the company the fourth best consumer discretionary stock on our list. As of Q1, Rajiv Jain’s GQG Partners increased its stake by 443% in the quarter to 794,782 shares worth $1.2 billion, making it the most significant shareholder of the company.
Lakehouse Capital stated the following regarding MercadoLibre, Inc. (NASDAQ:MELI) in its May 2024 investor letter:
“The Fund’s largest position, Buenos Aires based e-commerce leader MercadoLibre, Inc. (NASDAQ:MELI), reported a robust result that once again came in ahead of analyst expectations. Net revenue grew 30% year-on-year in U.S. dollar terms to US$4.0 billion while operating margins came in at 12.0%, providing a healthy balance of growth and profitability. Its marketplace business proved resilient, with strength in Brazil and Mexico more than enough to offset weakness in Argentina, which contacted by roughly a third due to weak macroeconomic conditions exacerbated by the 50%-plus devaluation of the Argentine Peso in December 2023. Whilst the economic situation in Argentia remains severe, we are comfortable with the risk as not only has management proved very adept at handling the challenges to date, but post the devaluation, the risk is meaningfully reduced as Argentina now only contributes 13% of the company’s total operating income. Overall, gross merchandise value still grew at 20% year-on-year to $11.4 billion and we continue to see significant opportunities ahead given the relatively nascent penetration of e-commerce in the region.”
Overall MELI ranks 4th on our list of the best consumer discretionary stocks to buy according to hedge funds. You can visit 10 Best Consumer Discretionary Stocks To Buy According to Hedge Funds to see the other consumer discretionary stocks that are on hedge funds’ radar. While we acknowledge the potential of MELI as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MELI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.