Mercadolibre (MELI – Nasdaq)
Dear Bottarelli Research Member,
What a week! First and foremost, let’s all thank goodness for our DIA February 128 Puts (DAW NX). As of Tuesday morning, this protective put position traded as high as $13.35, good for a whopping 225% gain off our $4.10 entry point. Although many of our small-cap positions are down, hedging this way is paying off handsomely. And more importantly, it’s giving our small-cap positions some much-needed breathing room to make it through this extreme market turbulence. Nailing a 235% return in the midst of this week’s selling pressure should make you extremely happy, so let me reiterate what I’ve been saying all along: Stay clam, stay focused, and we’ll get through this together.
Now as you know, the Federal Reserve heard Wall Street’s cries and unexpectedly cut rates by ¾ of a point. This was the Fed’s first ¾ point cut since October of 1984, and I fully expect them to cut another half point on January 30th. All told, I’m expecting a full 2-point drop in rates this year, and my friends, you better believe action like this will spark a lot of investor interest. Therefore, we’ll continue to uncover the most promising small-cap stocks on Wall Street. As a matter of fact, you should have gotten a great entry price on our small-cap play last week, CSIQ. The stock opened the day at $15.85, so that’ll be our official entry price. And by the close of trading on Tuesday, it hit a high of $18.50, good for a 16.7% return in one day. In fact, it traded as high as $20.60 today, good for a one-week return of 29.97%. Not too shabby! Continue to hold CSIQ, as Bryan and I have no doubt it’ll take off as the markets begin to stabilize. But now, let’s move onto this week’s pick.
Without exaggeration, this company has the potential to become the next Google. Yes, you heard me right. I’ve been following them since their inception on August 10th 2007 just waiting for the right time to strike. Now is that time.They own the largest online trading platform in Latin America, and they’re also the e-commerce market leaders in Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru, Uruguay, and Venezuela. They’re a young and aggressive company and we’re going to ride their coattails. The company is MercadoLibre (MELI – NASDAQ) and let’s establish a position anywhere under $60.00 per share.
UPDATES
SiRF Technology Holdings (SIRF – NASDAQ): Despite what the critics say, GPS is not going away – and SiRF is the dominant player in the GPS chips that run these navigation devices. Their new Location Awareness technology for mobile phones will really benefit them going forward. I’ve seen this technology first hand, and I can tell you: It’s amazing. Continue to hold SIRF.
Origin Agritech Limited (SEED – NASDAQ): I know this one started off on a rocky road, but make no mistake about it. SEED is well-positioned to benefit from the global explosion in soft commodities. If you have not seen the price of corn, wheat, soybeans, and cotton then you need to look at a chart on any one of them. They have exploded. As I mentioned before, I would use this dip to build a position, because the upside story is s far from over with this little gem.
China Finance Online (JRJC – NASDAQ): Here’s another great company being smashed. You may have sold out as the stock price moved under $15.00 per share, but if you’re still holding, it’s best to sit tight. After all, I’ve watched this one move $5.00 in a single day, and from the chart side of things, it’s very oversold. I fully expect JRJC to regain it’s foothold and move higher from here, but before adding to our position, let’s wait a week or so. Hold (for now).
E-House Holdings (EJ – NYSE) Our “Century 21 of China” has also been hit hard, but buying it at these levels under $20.00 is going to be one of the smartest things you have ever done. The name of the game here is picking up great companies at bargain prices, and buying more EJ at these levels certainly fits that description.
Evergreen Solar (ESLR – NASDAQ): When solar comes back, it’ll come back stronger than ever. Therefore, buy ESLR on this dip. No need to say more.
China Unicom (CHU – NYSE): This is our longstanding Chinese phone play – and the stock continues to do very well. We’ll alert you when it’s time to take any profits off the table. Until then, continue to hold.
E*TRADE Financial (ETFC – NASDAQ): As expected, they released their earnings and their 2008 turnaround plan – which involved stabilizing their customer base, reducing their balance sheet-related risk, and exiting non-performing businesses. They’ve also secured a $2.5 billion cash infusion, and folks this is exactly what we want to hear. That’s why we bought ETFC prior to this release, and this move has already made us a 22% return. I would continue buying ETFC (or adding to your position) on any pull back.
As one parting shot, Bryan gave some great quotes in one of his options alerts this week, and I’ve asked him to share them with you below. As you read through them – and relate their messages to today’s market – I think you’ll be comforted, amused, and inspired.
Have a great week everyone!
Sincerely,
Mark mentioned that Mercadolibre (MELI – NASDAQ) looks like the next Google. But the more I study this company, the more it looks like Google, Amazon, eBay, and VeriSign combined. (If you’re not familiar with VeriSign, they’re an online payment processor, which means they provide a means for e-commerce to happen.)
Founded in 1999 and headquartered in Buenos Aires, Argentina, MELI maintains an e-commerce online platform in Latin America which allows businesses and individuals to list items and conduct online sales in a fixed-price and auction-based format. The scope of their sale items ranges from motor vehicles, aircrafts, real estate, and other services. That’s quite a diversified list of items!
Their two principle business service segments are as follows:
MercadoLibre Marketplace: This is the Amazon, Google, and eBay aspect of their business. It’s a user-friendly online trading service that allows a registered user to browse through their various products and services that are listed on their Web site and bid or purchase these items and services.
MercadoPago Online Payments: This is the VeriSign aspect of their business, which provides the mechanism that allows users to securely, easily, and promptly send and receive payments online.
MercadoLibre makes money in a number of ways. First, they generate revenues from the MercadoLibre marketplace just like Google does: From listing fees, optional feature fees, final value fees, and online advertising. They also generate revenues from the MercadoPago segment like eBay does: From commissions for the use of this service.
Now I admit. Back in 1997, this was an emerging business model here in the United States. And over the last ten years, it has proven incredibly successful for companies like eBay, Amazon, and many others. So why would a 10-year old business model be “in play” right now? Well, when you consider the Internet usage statistics of Latin America, the opportunity will become immediately clear.
Right now, Latin American has a consumer market consisting of over 550 million people – and this group represents one of the world’s fastest-growing Internet penetration rates.
According to Internetworldstats.com, Latin America’s Internet users (measured in millions from December of 2000 to June of 2007) has grow a whopping 466%. That makes the Latin American region one of the fastest growing Internet segments in the world! Yet despite this explosive growth, only 18% of Latin America’s population has Internet access. That means the total Internet penetration, while rapidly growing, is still very, very low – and this makes a strong case for the region’s incredible growth opportunity. In other words, you’re investing in a proven Internet business model that’s just beginning the early stages of e-commerce growth. It’s like 1997 all over again!
Let’s examine some important statistics. The two dominant countries in Latin America are Brazil and Mexico. These two countries rank as the 5th and 11th-largest countries by population in the world. They also rank as the 10th and 14th largest economies, respectively.
Not many people realize this, but Latin America’s GDP is actually ahead of China. In fact, the GDP of the region ranks as the 4th largest in the world (behind only Germany, Japan, and the United States). So as you can imagine, the consumers in these Latin American countries, like their economies overall, are emerging. And that’s the “sweet spot” for rapid e-commerce growth. As Internet broadband continues to penetrate its way across a thriving Latin American middle class, you’re left with an opportunity to go back and bet on the same successful online business model of 1997. And I don’t think I need to argue too much for you to see the value proposition here.
After all, more than $100 billion worth of business was done online in 2006, and according to BusinessWeek, Google, eBay, Yahoo, and Amazon all now rank among the world’s top 100 brands. That’s why MELI is such an exciting opportunity. Within the Latin American geographic location, MELI ranks #1 in e-commerce sites in Brazil, Argentina, and Mexico. They’re (by far) the most dominate Internet presence in motors, real estate, and services.
Consider This: According to MediaMetrics statistics (which uses data pulled from March of 2007), MercadoLibre ranks as the 5th most visited Web site across Latin America, out-ranking Time Warner, Wikipedia, and France Telecom sites. Incredible!
Total Unique Visitors Across Latin America (thousands)
- Microsoft sites — 45,968
- Google sites — 44,966
- Yahoo sites — 35,219
- Terra Networks — 27,512
- MercadoLibre — 24,601
- Wikipedia — 21,051
- France Telecom sites — 16,624
- UOL sites — 14,013
- Time Warner Network — 13,459
It’s easy to get excited about this investment when you see what a powerful Internet presence MELI enjoys. And when you look at their recent financial numbers, the case gets even stronger!
- Gross merchandise volume came in at $395 million, up 39% from $284 million last year.
- Total payment volume increased 89% over last year. Record net revenues of $22.8 million represented an accelerating growth rate of 72% over the same quarter last year.
- Cash provided by operating activities increased 110% over last year.
- And growth in income from operations hit a new record in Q3, showing a whopping 422% increase.
Back in 1997, the e-commerce business model was a new concept. Consumers didn’t know the brands, didn’t trust that they’d receive their orders, and weren’t willing to send their credit card numbers out into cyberspace. Now that’s all changed. Companies like eBay, Amazon, and Google paved the way, and now MELI is ready to swoop in and apply this winning formula in Latin America.
And here’s the kicker…
When you query the direct competitors for MELI, Amazon and eBay will come up as #1 and #2. And then, when you query the major direct holders of MELI stock, guess what organization came up as #1? You guessed it: eBay Inc!
According to statistics on August 9th 2007, eBay owns 8,126,062 shares of MELI. What does that tell you about MELI’s current market position? Well, if anyone understands the potential of MELI’s operation, it’s eBay. And their major stock position is proof that the company is in store for big share price appreciation in 2008. So on that note, let’s go ahead and establish a position now!
PLAY: Buy shares of Mercadolibre (MELI – NASDAQ) at or under $60.00, good for the week.
Sincerely,
© 2012 CSR Group, LLC. All rights reserved. Published in USA.
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