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2 Breakout Growth Stocks You Can Buy and Hold for the Next Decade

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These two stocks are known winners. Use the recent weakness to your advantage.

Despite seeing monumental business expansion over the course of the pandemic, some stocks have been sold off to a point where the gains of the previous two years haven't mattered. The market has been overzealous with its future assessment and investors would be wise to scoop up these affected stocks. Two fantastic purchases right now are Shopify (SHOP 1.65%) and MercadoLibre (MELI -3.15%).

As shown in the chart below, their stock gains far underperform their sales growth.

MELI data by YCharts

The market may have gotten ahead of itself during mid-2021, but it has overcorrected in 2022. Shopify and MercadoLibre are still growing their businesses rapidly and have a product their customers rely on daily. What gives these businesses a definitive edge over the next decade?

Image source: Getty Images.

1. Shopify

The Shopify ecosystem supports businesses of all sizes across the world. With its e-commerce platform, an entrepreneur can quickly launch an online store with everything needed to run it, from payment processing to shipping solutions. Through its developer ecosystem, customers can find more than 8,000 different apps that can be plugged in and used to expand the basic capabilities of the store such as advertising on Facebook or Google.

Shopify's financials are split into two categories: subscription solutions and merchant solutions. Subscription solutions account for the monthly fee merchants pay to use Shopify's services. Revenue from this division rose 92% to $351 million from the fourth quarter in 2019 to 2021. Its merchant solutions segment takes a slice of every transaction processed through its website and is primarily driven by gross merchandise volume (GMV). These two metrics have seen a massive rise over the past two years.

Metric FY 2019 Total FY 2021 Total Growth
Merchant solution revenue $0.94 billion $3.27 billion 248%
Gross merchandise volume $61.1 billion $175.4 billion 187%

Data source: Shopify. 

E-commerce isn't going anywhere and Shopify is the clear leader in solutions focused on the small business. It is also expanding its platform attractiveness to larger businesses with its fulfillment center expansion plans. Speedy shipping and easy returns are two items consumers have come to expect when shopping online, and Shopify's expansion will level the playing field by giving its merchants the same tools as the retail giants.

Shopify's business has grown tremendously since the pandemic and it is taking steps to increase its offerings going forward. This is a stock with strong potential to beat the market over the next decade.

2. MercadoLibre

Another e-commerce play, MercadoLibre, is the primary provider of several services in Latin America. It has a shipping division, an e-commerce platform, and a digital payment solution that connects consumers and businesses in a modern way. The company has been a force throughout the 18 countries its products are available in and is considered the market leader in each location because of its user base.

MercadoLibre capitalized on the shift to digital through the pandemic. In Q4 2021, its fintech revenue was $773 million, up 81% from Q4 2020 and 249% from Q4 2019. On the commerce side, Q4 net sales were $1.4 billion, up 67% from Q4 2020 and 336% from Q4 2019. This extreme growth has expanded MercadoLibre's dominance and solidified its leadership.

Latin America is home to more than 635 million people, so there is plenty of room for MercadoLibre to capture and expand customer spending. Throw in growing divisions like its Mercado Credito credit portfolio and Mercado Envios shipping logistics, and the decade-long bull case for MercadoLibre's stock takes shape. This is a vital company in an expanding region, investors should take advantage of the stock being down significantly from its all-time high.

Both businesses have seen their valuations slashed when assessed from a price-to-sales standpoint.

MELI PS Ratio data by YCharts

Shopify and MercadoLibre are now trading at a cheaper valuation than they were during the height of the March 2020 COVID-19 sell-off. The market has adjusted the stocks' valuations to a more reasonable level after the recent downturn and if sales continue to rise the valuation will drop further if the stock price stays constant. Additionally, both companies are now valued about the same as they were during 2018 -- a time when the federal reserve was raising interest rates.

Shopify and MercadoLibre have great growth prospects over the next decade, as e-commerce will continue to take market share from legacy retail. Investors should use this market weakness as an opportunity to take a position in two companies with market-beating potential over the next decade. While these two businesses aren't really 'new' picks, one of the greatest investors of all time, Peter Lynch, once said: 'the best stock to buy is the one you already own.'

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