Tech Sell-Off: 2 Unstoppable Stocks You’ll Regret Not Buying on the Dip | #emailsecurity | #phishing | #ransomware

The Nasdaq Composite is down about 12% from its high, putting the tech-heavy index in correction territory. And many individual stocks have been beaten down much further, as high inflation, rising interest rates, and geopolitical conflict have spooked investors. For instance, Cloudflare ( NET -2.25% ) and MercadoLibre ( MELI -5.67% ) have fallen 46% and 40%, respectively, from their highs.

Those losses sting in the short term, but the ongoing sell-off also creates an opportunity for long-term investors. Cloudflare and MercadoLibre compete in quickly growing markets and both have carved out a strong competitive position. For that reason, now looks like a good time to buy a few shares of these two high-flying tech stocks.

Here’s what you should know.

Image source: Getty Images.

1. Cloudflare

Cloudflare offers cloud services and developer tools that help enterprises accelerate and secure applications, networks, and other corporate resources. Its platform spans more than 100 countries and it interconnects with 10,000 networks, including every major internet service provider and public cloud vendor. To that end, its infrastructure sits within 50 milliseconds of 95% of internet-connected users worldwide, giving Cloudflare a significant competitive edge over smaller vendors.

Additionally, its cloud-native platform differentiates it from on-premise networking solutions, which are both costly to purchase and complicated to manage. And its cloud-neutral architecture gives it an edge over vendors like Amazon Web Services and Microsoft Azure. In other words, Cloudflare is designed to support hybrid- and multi-cloud environments, functioning as a single interface across private and public clouds. By comparison, legacy vendors tend to favor their own services.

Collectively, those advantages (along with Cloudflare’s relentless innovation) have translated into consistently strong financial results. In 2021, its customer base surpassed 140,000, up 26%, and the average customer spent 25% more, evidencing the stickiness of its services. In turn, revenue skyrocketed 52% to $656 million, and the company generated positive cash from operations of $65 million, up from a loss of $17 million in the prior year.

Going forward, digital transformation should be a tailwind for Cloudflare. As organizations look to make their business-critical systems faster and more secure, the company should see continued demand for its services. In fact, management puts its addressable market at $100 billion by 2024. And while the stock still trades at a pricey 55 times sales, I think it’s worth buying a few shares today. Time and again, Cloudflare has demonstrated its ability to expand into new verticals, and with products like email security and cloud storage in the pipeline, investors have good reason to believe that trend will continue. In turn, those innovations (and others) should turbocharge top-line growth, which will make its price-to-sales ratio look more reasonable in time.

2. MercadoLibre

Since its founding in 1999, MercadoLibre has carved out a dominant position in the Latin American e-commerce industry. Fueled by its first-mover status, its online marketplace is unrivaled in terms of page views and unique visitors across all major geographies in which it operates, including Argentina, Brazil, and Mexico.

The company has turbocharged its growth with a broad lineup of value-added services, including its fintech platform Mercado Pago and logistics business Mercado Envios. Those services make its marketplace stickier by further simplifying commerce for merchants. Better yet, both services are gaining momentum. In the fourth quarter, total payment volume surged 52% to $24.2 billion, and nearly 90% of items sold on the marketplace were shipped through its managed logistics network.

That uptick in adoption means switching costs are rising. In other words, the more a merchant depends on MercadoLibre, the harder it becomes to cut ties with the company. That competitive edge enabled MercadoLibre to increase its marketplace take rate — revenue as a percentage of gross merchandise volume — to 16.3% in 2021, up from 9.6% in 2019. In turn, revenue skyrocketed 78% to $7.1 billion, and the company posted a GAAP profit of $1.67 per diluted share, up from a loss of $0.08 per diluted share in the prior year.

Looking ahead, online shoppers in Latin America will spend $160 billion in 2025, according to Statista, putting MercadoLibre in front of a massive market opportunity. And with the stock down 40% from its high, shares are trading at 8.2 times sales, well below their three-year average of 15.3 times sales. That’s why now looks like a great time to buy this beaten-down tech stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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