Last June, Yahoo was kicked out of the Nasdaq 100 stock index...
The headline story was about Yahoo's demise.
Specifically, Yahoo failed to figure out how to create an "ecosystem" that people wanted to be a part of. Apple (AAPL), Alphabet's Google (GOOGL), Facebook (FB), and China's Tencent (TCEHY) developed ecosystems that people didn't want to leave. And they became the most valuable businesses in the world.
With these ecosystems, it's a winner-take-all type of thing... It doesn't matter who's No. 2 to Facebook. The market leader is the only one that matters.
As you know, I expect we're on the verge of a "Melt Up" in stock prices – where certain stocks become untethered from reality and soar to unreasonable heights.
And I think these ecosystem-related businesses will be the biggest beneficiaries... They should be some of the biggest winners in the Melt Up.
But everyone already knows Apple, Google, and Facebook... Are there any true ecosystems out there that most people don't know about? Yes!
The company that replaced Yahoo in the Nasdaq 100 is exactly what we're looking for...
I'm talking about MercadoLibre (MELI).
Yahoo couldn't build an ecosystem. But MercadoLibre did...
MercadoLibre is the largest e-commerce company in Latin America. It's the online leader in all 18 countries it operates in.
Online shopping is a relatively new experience, especially in cultures that are used to paying for things after they receive them. In Brazil (Latin America's largest market), e-commerce sales made up just 3% of total retail sales in 2015. That's nothing!
Acceptance of online shopping in Latin America has been slower than the rest of the world... But for MercadoLibre, it just means there's plenty of room for growth.
And what really gets me excited here is that the company's business model has shifted lately...
MercadoLibre is adding additional ecosystems. For example, the company created its own payment system called MercadoPago. This could be huge – like the PayPal (PYPL) of Latin America.
Brazil is the ninth-largest e-commerce market in the world. But only 9% of the population uses the Internet to make purchases or pay bills. MercadoLibre's payment system makes it easier for people to do everything from buying stuff to paying bills to paying each other.
In short, MercadoLibre already dominates on a continent that is in the early stages of adopting e-commerce. And it's building other ecosystem businesses to go along with it.
Sure, the company is relatively unknown in the U.S. today. But it already is THE dominant player in online commerce in Latin America – a segment that is certain to grow exponentially. And it's positioned perfectly to hold on to that dominant position.
If we can learn something from Yahoo's demise, it's that the company failed to build an ecosystem that users loved. MercadoLibre is doing exactly that.
Is the company expensive? Yes. Is it overpriced? Probably. Could it double from here if my Melt Up idea turns out to be right? Absolutely.
To me, MercadoLibre is exactly the kind of stock you want to own during the Melt Up.
Good investing,
Steve
P.S. For more on MercadoLibre, I suggest checking out this video interview with its co-founder and CEO, Marcos Galperin.
Further Reading:
"The biggest gains in a stock-market 'Melt Up' typically happen in tech stocks," Steve writes. He has found an indicator that suggests they could soar... leading the entire market higher. Read more here: This Will Cause the Next Leg Higher in the 'Melt Up.'
"If you thought you missed the great run-up in stock prices over the past two years, think again," Steve writes. Find out why he says February's correction was "fantastic news" here: The Upside From February's Correction.
Tech companies with large ecosystems are likely to rally as the "Melt Up" continues. That's why this Chinese tech giant should soar as global stocks melt higher...
HIGHS AND LOWS
NEW HIGHS OF NOTE LAST WEEK
Amazon (AMZN)... "FANG" stock
Apple (AAPL)... iPhones, iPads, and more
Microsoft (MSFT)... "digital utility"
Intel (INTC)... semiconductors
Nvidia (NVDA)... technology "picks and shovels"
Micron Technology (MU)... semiconductors
Cisco (CSCO)... Internet "plumbing"
Verisign (VRSN)... domain names
Grubhub (GRUB)... on-demand food delivery
Twitter (TWTR)... "bad to less bad"
Match (MTCH)... online-dating juggernaut
Etsy (ETSY)... online marketplace
TD Ameritrade (AMTD)... online brokerage
Square (SQ)... digital payments
Global Payments (GPN)... digital payments
Mastercard (MA)... credit cards
Charles Schwab (SCHW)... financial services
Intuit (INTU)... TurboTax, QuickBooks
Tapestry (TPR)... luxury purses
Estée Lauder (EL)... cosmetics
Callaway Golf (ELY)... golf equipment
Aaron's (AAN)... rent-to-own furniture
Burlington Stores (BURL)... discount retailer
Choice Hotels (CHH)... Clarion, Comfort Inn, Quality Inn
Bloomin' Brands (BLMN)... casual dining
Denny's (DENN)... chain restaurants
NEW LOWS OF NOTE LAST WEEK
ExxonMobil (XOM)... oil and gas
Harley-Davidson (HOG)... motorcycles
Goodyear Tire & Rubber (GT)... tires
Kraft Heinz (KHC)... ketchup, cheese, and more
CVS Health (CVS)... drugstores
Signet Jewelers (SIG)... jewelry stores in malls
Hasbro (HAS)... toys
Dish Network (DISH)... satellite TV
