While the stock market appears to be performing well, with the S&P 500 nearing record highs driven by rising AI stocks, underlying concerns lurk. From software companies and automobile manufacturers to consumer goods firms and consumer credit agencies, many stocks untouched by the AI craze are experiencing significant declines. Against this backdrop, the share prices of two leading consumer sector giants, MercadoLibre (MELI) and Nintendo (NTDOY), have pulled back notably from their peaks, creating rare opportunities for long-term investors.
The Japanese gaming giant Nintendo launched its next-generation gaming device, the Switch 2, last year. The console quickly became one of the fastest-selling game systems in history, with cumulative sales exceeding 17.1 million units in the first three quarters of the fiscal year ending March. Although investors have recently turned pessimistic about the company’s stock due to rumors of a weak game lineup and rising memory chip prices impacting hardware costs, concerns regarding the lack of games for the Switch 2 are actually a misunderstanding.
Nintendo has significantly increased its investment in game software development, encompassing classic titles and online subscription services. More notably, the company is expanding its entertainment portfolio beyond gaming boundaries: a second Super Mario Bros. movie is set for release, and the ongoing operation of global theme parks and official stores continues to attract fans to purchase hardware.
Despite a short-term rebound in the stock price driven by strong sales of the latest Pokémon games, the Japanese company’s US-listed shares currently remain 36% below their all-time high. With strengthening momentum and a pipeline of games based on classic intellectual properties planned for the coming years, Nintendo is presenting a rare opportunity for investors.
On the other side of the globe, MercadoLibre is profoundly reshaping the Latin American market through its cross-border e-commerce and consumer finance platform. Operating in countries like Brazil, Mexico, and Argentina, the company has recently faced pressure due to management’s consistent strategy of reducing consumer costs and increasing investments for growth. Its operating profit margin over the past twelve months has dipped to 11%, down from a peak of 16% in previous years.
While investors may have concerns about the profit margin, this aggressive investment strategy is already yielding results in revenue growth. On a constant currency basis, the company saw revenues grow by 37%, 41%, and 77% in the last quarter within the Brazilian, Mexican, and Argentinian markets, respectively. Revenue from its payments platform, MercadoPago’s fintech operations, achieved a remarkable 61% year-over-year increase, positioning it among the fastest-growing digital financial businesses globally.
As Latin American markets accelerate their transition towards online shopping and mobile banking, MercadoLibre’s revenue is poised to continue climbing. The stock currently trades at a seemingly high price-to-earnings (P/E) ratio of 42 times. However, this reflects a temporary compression of margins to support expansion plans. Looking at the long term, revenue growth coupled with margin recovery should drive share price performance: If the company, with its current $85 billion market capitalization, can increase its revenue from $29 billion to $60 billion within a few years and achieve a 15% profit margin, annual profits could reach $9 billion. This would bring the forward P/E ratio down to below 10 times. This combination of growth and earnings potential makes MercadoLibre an investment opportunity not to be missed.
