As an investor, 2023 has been exasperating for me. Many of the stocks I like aren't performing as I'd expect. My attitude might seem greedy considering the S&P 500 is up 11% year to date. After all, that's a pretty good year.
Another data point tells a different story. A 200-day moving average looks at a stock's price over 200 days of trading and calculates the average price. It's a good proxy for what's performing relatively well or poorly right now.
According to data from Barchart, 70% of stocks currently trade below their 200-day moving average. That's not the worst it's ever been by a long shot. But it's among the top-10 in the last 20 years. My point is simply this: An unusually high number of stocks are down right now even though the stock market is up.
Moments like these tend to yield timely investment opportunities. And I believe that MercadoLibre (MELI 0.78%), Xometry (XMTR 1.12%), and Academy Sports and Outdoors (ASO -5.57%) are three stocks you'll be glad you bought at these prices.
1. MercadoLibre
MercadoLibre is a company in Latin America that does business in multiple categories, including e-commerce, financial technology, shipping logistics, digital advertising, and more. Participating in these many growth sectors has allowed it to grow revenue by more than 700% in just the last five years.
Revenue isn't the only thing skyrocketing for MercadoLibre. In the second quarter of 2023, former CFO Pedro Arnt credited operational discipline and efficiencies of scale for a major improvement in profitability. As seen below, the company's income from operations is absolutely soaring.
MELI Income from Continuing Operations (TTM) data by YCharts.
MercadoLibre's business is smashing records on the top and the bottom line. But as of this writing, the stock is down more than 40% from its all-time high set back in 2021. The stock rarely pulls back for this long and has only dropped by a larger percentage one time.
If its opportunities for growth were all in the past, then I believe there'd be reason for concern. But MercadoLibre's growth shows no sign of falling off a cliff, with net revenue up 57% year over year in the second quarter. And we've seen that profits are shooting up as well. In short, now's a good time to grab some shares of MercadoLibre.
2. Xometry
Xometry is an online marketplace for custom manufacturing, connecting buyers with small-scale shops. Marketplace businesses like Airbnb or Amazon are pretty straightforward -- sellers offer products and set their own prices. Custom manufacturing, however, is a horse of a different color. Shops can't set prices in advance because pricing depends on the specifics of the custom job.
Xometry has solved a very real problem. Using artificial intelligence (AI), it offers its buyers instant pricing as soon as they upload the specifics of their job. This greatly reduces lead times; small manufacturing outfits can't price a job that fast.
Faster lead times might explain why Xometry is winning new buyers at a high pace; they love the ability to move faster. In 2023's Q2, active buyers jumped 44% year over year to 33,491.
Here's the thing though: Xometry doesn't manufacture the custom parts. Rather, it posts jobs for its more than 7,000 suppliers to claim. Therefore, investors must hope that the company's AI technology has priced jobs appropriately. The difference between what it charges buyers and what it pays suppliers to do the job is Xometry's gross profit.
In other words, Xometry doesn't take a marketplace fee like other marketplace businesses. It makes money on the spread.
Good AI gets better with more use. Accordingly, if Xometry's AI is good, then its spread should improve. Therefore, investors would expect its gross-profit margin to go up. And that's indeed what's been happening, as seen below.
XMTR Gross Profit Margin (Quarterly) data by YCharts.
Xometry's management believes it's chasing a multitrillion-dollar opportunity. It's clearly attracting buyers, and it appears its AI is getting better. Moreover, its top 200 buyers account for roughly half of its revenue and are increasing their spending over time, providing it with an efficient path for growth.
Trading at less than two times sales, Xometry, I believe, is offering long-term investors stock for a steal.
3. Academy Sports
The investment thesis for big-box athletic retailer Academy Sports is straightforward: The company aims to grow its top line and improve its profit margins, leading to much higher earnings within the next few years. And the stock is dirt cheap today at seven times its trailing earnings, limiting its potential downside.
In 2027, Academy Sports is aiming for over $10 billion in full-year revenue. And management hopes to achieve a 10% profit margin. As the chart below shows, its profit-margin goal is well within reach. But it will need to grow its top line significantly.
ASO Revenue (TTM) data by YCharts.
Academy Sports expects to grow revenue by opening up new stores. The company had 270 locations in 2023's Q2, and it expects to open between 120 and 140 new stores through 2027. That's substantial and should get it to its revenue goal.
New stores have the potential to boost Academy Sports' profit margin over its desired 10% goal. These new locations will be served by existing distribution centers, making its supply chain more efficient in theory.
If Academy Sports hits its targets, it will be earning $1 billion in annual-net income about four years from now. The company's market capitalization is only $3.5 billion, so its profit goal could be material to investors. Moreover, management has a history of returning capital to shareholders, which could also boost shareholder returns over the next four years.
Choosing the best and most timely investment
Frankly, it's hard for me to single out the best timely opportunity among MercadoLibre, Xometry, and Academy Sports. Business trends are good for all three, and each is trading at a compelling valuation.
That said, Academy Sports only went public in 2020 and Xometry in 2021. Therefore, they're relatively new and have younger public track records. By comparison, MercadoLibre has a long history of market-beating growth, and it's consequently the one in which I have the highest confidence among this trio.
