gGrowth stocks, especially those that thrived during the height of the coronavirus pandemic, have largely fallen out of fashion in 2021. But for many of these companies, this is only a minor inconvenience in the grand scheme of things. .
As long as a company’s investment thesis remains intact, whatever the short-term market does, this shouldn’t be too much of a concern. Investors should keep their eyes on the price and stick to a buy and hold strategy.
With that in mind, let’s look at two growth stocks that look set to deliver above-average returns for many years to come: DexCom (NASDAQ:DXCM) and MercadoLibre (NASDAQ: MELI).
DexCom is a medical device company focused on helping diabetes patients achieve better health outcomes. The company currently derives most of its revenue from its G6 Continuous Glucose Monitoring (CGM) system, which helps people with diabetes track their blood sugar levels.
The company’s G6 includes a sensor (inserted under the skin) as well as a transmitter and a touchscreen device that gives patients blood glucose readings. Increased adoption of CGM technology has been a significant driver of DexCom’s revenue growth in recent years.
Business was excellent last year. In the first nine months of 2021, the company’s revenue increased 28.9% to $1.8 billion from the prior year period, while net income jumped 25. 8% to $174.1 million. 2022 promises to be another great year. In the fourth quarter, the company submitted its G7 CGM device – the successor to the G6 – to US health authorities for review.
Regulatory clearance for the G7 could come this year. This device is an improvement over the G6, according to the company. In a clinical trial that enrolled more than 300 diabetic patients and compared more than 39,000 readings by the G7 to those taken manually with blood glucose meters, the G7 fell within 20% of the confirmed blood sugar level 93% of the time .
In a recent conference call, DexCom CEO Kevin Sayer said:
The performance of this product is something I never expected to see in nearly 30 years in this industry. With such a large sample size, there is absolutely no doubt about the performance of this system. The results are far superior to the G6 and any competing product on the market.
Meanwhile, there is an important place in the CGM space. In the United States, DexCom estimates that the market for patients with type 1 diabetes is less than 50% penetrated, while the market for type 2 diabetics requiring intensive insulin therapy is less than 25% penetrated.
These numbers are lower in most other countries since the United States is a world leader in the adoption of this technology. In addition, the number of people with diabetes is unfortunately expected to continue to increase. This gives a lot of fuel to DexCom’s growth engine.
Shares of the company have managed to outperform the market over the past year despite selling off in the final weeks of 2021. Given its strong position in an industry ripe for growth, expect may this healthcare stock continue to perform well for many years to come.
MercadoLibre was a big victim of the exit from growth stocks last year. While the e-commerce platform’s business was booming at the start of the pandemic, its shares rose too quickly during the worst of the outbreak, and market-wide concerns towards the end of 2021 led to a correction.
But MercadoLibre’s investment thesis remains intact. As a leader in e-commerce in Latin America, it has a complete ecosystem of complementary services that its customers appreciate. The company’s main marketplace is supported by its fintech platform, Mercado Pago, which facilitates transactions on the website – and many more.
Then there’s the company’s Mercado Envios, which provides sellers on its platform with warehouse and fulfillment solutions. Mercado Shops is another of MercadoLibre’s offerings that allows sellers on its platform to open and manage online storefronts.
Thanks to this convenient menu of services, the MercadoLibre ecosystem has high switching costs. It’s hard for customers (especially sellers) to jump ship. It also benefits from the network effect. Both sellers and buyers stand to gain as more members of both groups join the MercadoLibre marketplace.
MercadoLibre’s financial results continue to impress. In the third quarter, the company’s net revenue jumped 66.5% year-over-year to $1.9 billion. This was driven by a 23.9% increase in the company’s gross merchandise volume — the total value of transactions made on its platform — to $7.3 billion. Meanwhile, the company’s net profit rose to $95 million from $15 million a year ago.
While it has become the dominant player in Latin America, MercadoLibre still has significant room for growth in this region. And given the wide range of services it offers, it will be difficult for competitors to eat away at the tech giant’s market share. That’s why MercadoLibre looks like a buy-and-hold business for a very long time.
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Prosper Junior Bakiny has no position in the stocks mentioned. The Motley Fool owns and recommends MercadoLibre. The Motley Fool recommends DexCom. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.