There are many different approaches to investing and different goals. Some investors are looking for passive income, while others are saving for a rainy day. Many want to retire with at least $1 million in their portfolios for a comfortable retirement.
If you start early enough, add funds consistently, and hold for many years, the million-dollar goal is doable. It also helps to pick great stocks. MercadoLibre(NASDAQ: MELI) and Lemonade(NYSE: LMND) are two excellent candidates.
1. MercadoLibre: The king of Latin American e-commerce
MercadoLibre is one of the hottest tech stocks. It has a dominant position in two exceptional growth industries, and it just keeps getting better.
The company's main business is e-commerce. It serves 18 Latin American countries with a robust e-commerce platform that rivals Amazon in this region. MercadoLibre has a strong logistics business that gets products to buyers quickly and efficiently, and it recently launched a membership program called Meli+.
One of the ways MercadoLibre continues to improve services is through getting more suppliers to join its network, but it's doing a lot more. It allows members to choose a day of the week to get all of their purchases, resulting in lower costs.
It also just opened its first fulfillment center in Texas to service the Mexican market. That could lead to further U.S. penetration, and it's something to keep an eye on. Taking a page from Amazon's playbook, the company is offering more brand names, and it now has gift lists and customized coupons.
Gross merchandise volume was up 20% year over year (83% on a currency neutral basis) in the second quarter, and as the company keeps bringing out higher-value services, expect it to keep up strong growth.
But MercadoLibre is about a lot more than e-commerce these days. It operates a high-growth fintech segment that includes digital payments and a host of other financial services all on its app. Monthly active users increased 37% year over year in the second quarter, and total payment volume was up 36% (86% on a currency neutral basis).
The financial side of things is extremely profitable, resulting in strong income for the whole company. Assets under management rose 86% to $6.6 billion in the quarter, and net interest margin (after losses) was 31.1%. Total net income more than doubled year over year in the second quarter with a 10.5% margin.
The e-commerce market is still underpenetrated in Latin America, and with its two main businesses, MercadoLibre has massive potential.
2. Lemonade: The disruptive insurance model
Lemonade is an insurance company powered by artificial intelligence (AI) that's setting out to change how people buy insurance. So far, it's been wildly successful, at least in getting customers to choose its products and increasing its top line. In-force premiums increased 22% year over year in the second quarter, with revenue up 17%.
With the explosion in AI capabilities, it's only natural that new insurance companies are entering the industry with a better product.
What is a better product? Lemonade is almost entirely digital, adding customers and paying claims with chatbots. It uses data analytics and machine learning to make quick and accurate policy pricing and pay out claims. It's fast and simple, with approvals often in seconds, and it requires little human intervention.
So why aren't the old companies doing this? To some degree, they are. But they are huge companies with layers of embedded infrastructure; it's not so simple to do a complete overhaul.
Lemonade, on the other hand, was built on a digital substrate, and AI is part of everything that it does. It's agile and modern, and clicking on a chatbot to get a policy price or make a claim feels much more user-friendly than making a phone call to an agent.
Where Lemonade has been less successful at so far is turning a profit, but there's been improvement. Notably, it reported a strong decline in its loss ratio in the second quarter. That's a positive direction for loss ratios, which measure how much an insurance company pays in claims.
The loss ratio has been higher than shareholders want to see, but even though improvements haven't been linear, it's been moving in the right direction.
The company is also still reporting serious net losses. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) improved 18% in the quarter but was still a loss, and the net loss narrowed 15% to $57 million. That's still a whopper of a loss.
Lemonade has disappointed investors, who feel that it's taking too long to demonstrate that its profit will truly be an improvement over legacy insurance companies. But it is getting there.
Lemonade stock is definitely not for the risk-averse investor. It's still down a huge 91% from its all-time highs, and the market has really lost its taste for it. However, the market is fickle, and it could change on a dime (more likely a few million in net income).
As soon as Lemonade starts to demonstrate better value, it should start to climb again. Granted, that's taking a long time. But in the long term, the stock could be a tremendous asset to a growth portfolio. And, at this cheap price, risk-tolerant investors might want to take a small position.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jennifer Saibil has positions in Lemonade and MercadoLibre. The Motley Fool has positions in and recommends Amazon, Lemonade, and MercadoLibre. The Motley Fool has a disclosure policy.
