The Best Stocks to Buy With $1,000 Right Now

While nervous investors are still loading up on safe stocks, and growth stocks continue to plummet, now might be the best time for forward-thinking investors to go against the tide and pick up shares of no-brainer stocks at excellent valuations. If you have $1,000 available for investing after setting aside an emergency fund and paying off any debt, consider buying shares of PayPal (PYPL -3.24%) and MercadoLibre (MELI -2.61%).

1. The digital age is still in its infancy

We think of PayPal as ancient in today’s exploding digital-payments industry. That give it a first-mover’s edge, and the company effectively used that to upgrade and expand.

It was well positioned to benefit from the shift to digital during the pandemic, and it did not disappoint, with some of its best quarters ever. Although it made strides over the past two years in keeping up with fast-moving trends, now that the early-stage pandemic growth has subsided, it’s dealing with a new normal.

Keeping up with new digital technology combined with facing tough year-over-year comparisons made the 2022 second quarter a bit of a dud. And its stock price, which began to slide after ominous predictions from management a year ago, plunged further after the second-quarter report.

What’s actually going on is decelerating growth and generally increasing prices, not so different from the situation that many companies are dealing with as they exit a period of unprecedented growth. Second-quarter sales increased 9% year over year, lagging far behind the 19% last year and 22% the year before.

Potentially worse, though, was the net loss. It hasn’t posted a quarterly net loss in almost 10 years. Expenses escalated through the past two years’ magnificent growth, along with acquisitions to feed that growth.

Management unveiled a plan to cut $900 million in costs this year. Driving these savings are an expected increase in network volume, along with focused objectives as it settles down from a high-growth period.

This also has to be looked at in the bigger picture. CEO Dan Schulman said that e-commerce sales growth was about flat in the second quarter, and probably negative without travel. That was echoed in a June report from Morgan Stanley, which had e-commerce growing from 15% of total retail sales in 2019 to 21% in 2021, and holding at 22% in June. PayPal’s growth demonstrated that it’s taking greater overall market share in this pressured environment.

The other part of the bigger picture is the long-term outlook. The Morgan Stanley report projects e-commerce sales growing from $3.3 trillion today to $5.4 trillion in 2026. As PayPal captures market share, it should capitalize on that growth.

No company will operate without mistakes. But investors can embrace mistakes if management deals with them effectively, and they can give some love to setbacks since they often provide short-term price resets that are great buying opportunities.

PayPal stock is down 50% this year, and that’s already much better than earlier lows. The stock bottomed out around the time of the second-quarter earnings report, and savvy investors are recognizing this as the time to buy in.

2. Powering digital in a massive market

MercadoLibre is also building on tremendous strength earlier in the pandemic, and it’s still demonstrating enormous growth. Sales increased 57% year over year (on a currency-neutral basis) in the 2022 second quarter on top of triple digits last year, and growth was significant in almost every area of its large and varied business.

Its core business is e-commerce, and it operates a web presence similar to Amazon. Gross merchandise volume increased 22% over last year to $8.5 billion, with a record 40.8 million active buyers in the second quarter. That was despite headwinds of both a slowdown in overall spending and greater mobility after lockdowns.

Fintech growth was robust, with total payment volume (TPV) increasing 84% over last year. MercadoLibre has been expanding merchant tools, resulting in greater customer sales conversions. It also offers more features on the Mercado Pago digital payment app, similar to PayPal’s, including investment tools and an improved digital interface. Digital-account TPV increased 167% to $9.4 billion.

The credit business was also healthy, with a $2.7 billion portfolio, or 230% more than last year. That was a large contributor to the company’s overall margin expansion, but it also gives MercadoLibre more exposure to potential defaults. It’s something to keep an eye on in the coming quarters as the economy continues to experience upheaval.

As a growth company, MercadoLibre needs to balance using its opportunities with managing profitability and efficiency. Its wide range of businesses lets it achieve some of that balance, because it can use cash from its profitable segments to fund new ventures, remaining overall cash positive and profitable. Net income for Q2 was $123 million.

MercadoLibre has a wide-open runway for more growth, and its stock is down 32% this year. This is an opportunity to buy on the dip.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has positions in MercadoLibre. The Motley Fool has positions in and recommends Amazon, MercadoLibre, and PayPal Holdings. The Motley Fool has a disclosure policy.