The Nasdaq index is known for including a ton of tech stocks. These include Apple and Amazon. But while the index soared last year, it has started to dip more recently, mainly due to inflationary pressures and fears that many stocks are overpriced. This was no different on Friday, where the index fell 2%. Some of the largest fallers included DocuSign (which crashed over 40% due to weak forward guidance) and Adobe (which fell over 8% due to similar worries). But I think that many of these tech stocks are now underpriced and here are two I’d buy right now.
A Latin American e-commerce giant
Since it announced that it was raising around $1.55bn through a share issuance midway through November, the MercadoLibre (NASDAQ: MELI) share price has crashed 35%. This is despite the fact that the new shares were issued at $1,550 per share and had a very minimal dilutive effect. As such, its current share price of around $1,050 seems way too cheap and the sell-off looks overdone to me. This is especially true considering that the company is performing excellently, and over the Christmas period, I feel it can improve further.
Indeed, in the Q3 trading update, the company reported revenues of $1.9bn, a 73% year-on-year rise. This means that revenues have totalled nearly $5bn so far in 2021. Further, I feel that, especially considering the Christmas boost, revenues will be able to reach $7bn for the full year. This puts MercadoLibre on a forward price-to-sales ratio of around just 7. Considering the firm’s excellent revenue growth rate, this seems far too cheap. For example, Amazon has a price-to-sales ratio of around four, yet its revenue growth rate is around five times slower. Like other good tech stocks, MercadoLibre also has diversified revenues due to its fintech business, MercadoPago.
As such, despite the risks of inflation, and the recent rights issue continuing to depress investor sentiment, I think MercadoLibre is way too oversold. I’ll continue to buy this stock on the dip.
A very established tech stock
PayPal (NASDAQ: PYPL) is one of the leaders in the fintech industry, yet it has fallen over 40% from its recent highs, and 16% over the past year. This has mainly been due to fears of rising competition, which includes companies like Square and SoFi. But while such competition does pose a risk, PayPal still seems in an excellent position to continue growing. Indeed, in the recent trading update, it was able to add another 13.3 net new active accounts. It also announced a partnership deal between its subsidiary Venmo and Amazon.
Therefore, I believe that PayPal has maintained a competitive edge over its competitors. As the fintech industry is growing quickly, it should also be in a strong position to capitalise. In fact, it’s already aiming for $50bn in revenues by 2025, around a 100% rise from this year. If it can achieve this, profits should also soar. This demonstrates that the share price still has plenty of upside potential. Accordingly, I’m willing to buy more shares in this established tech stock.
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.
The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.
But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Stuart Blair owns shares in MercadoLibre, PayPal Holdings and SoFi Technologies Inc. The Motley Fool UK has recommended Amazon, Apple, MercadoLibre, PayPal Holdings, and Square. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.