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Adding to winning stock picks can feel uncomfortable. Often when stocks reach new all-time highs, their valuations become too formidable for investors to stomach additional purchases.

Worse yet, investors may suffer from anchoring bias after seeing this jump in share price, thinking, “I could have just bought this for 25% less six months ago.” However, adding to winning stocks is an investing exercise that should be considered, because winning stocks tend to keep winning.

Mastercard (NYSE: MA) and MercadoLibre (NASDAQ: MELI) are prime examples of winning stocks. Delivering high sales growth and operating in industries that have megatrends working in their favor, here’s what makes these two businesses premiere long-term buys despite having share prices near 52-week highs.

1. Mastercard has numerous market-stomping qualities

Posting a total return of 560% since 2013, Mastercard’s vast payments network continues to displace cash. Accounting for 30% of global point-of-sale transactions before the pandemic, cash use has dropped to 18% in the few years since. While Mastercard may have already reaped most of this “easy” growth — because its cards are a direct alternative to cash — don’t expect the company to run out of growth options.

Even if card growth were to peak in due time, the company’s value-added services (VAS) segment would be ready to take over. The VAS segment provides a range of offerings through three groups: cyber and intelligence solutions, data and services solutions, and processing and gateway.

One example of VAS’s potential can be seen in Mastercard’s deal with nine of the biggest banks in the U.K. Through its unique vantage point as the network that connects these banks, the company can prevent payment scams that may otherwise go unnoticed until it is too late. On a global level, this surveillance could have numerous use cases in deterring fraud, illegal activities, or any other financial debauchery.

Meanwhile, VAS also provides its clients with insights, consulting, merchant loyalty, and marketing services using the company’s immense transactional data. Accounting for 35% of Mastercard’s revenue, these VAS sales continue to outpace the growth generated by the company’s core payments segment.

Best yet for investors, Mastercard has four traits that are hallmarks of long-term outperformance:

Its return on invested capital (ROIC) of 49% is the 15th highest in the S&P 500 index. Measuring a company’s profitability compared to its debt and equity, a high ROIC is vital to investors as stocks in the top quintile of this metric have proven to outperform their peers.
Mastercard pays a 0.6% dividend that only uses roughly 20% of the company’s net income, implying ample room to extend its 11-year streak of raising its dividend. Since 1973, dividend growth stocks in the S&P 500 have outperformed the index (equally weighted) by 2.5 percentage points annually.
Lowering its share count by 9% in just the past five years, the company has a track record of buying back shares. In a study by S&P Global from 2000 to 2020, the S&P 500 Buyback Index (the 100 top buyback companies in the index) outperformed the S&P 500 index itself by 5.5 percentage points annually.
According to Kantar Brandz’s 2022 report, Mastercard is the 12th-strongest global brand. Since 2006, stocks tied to brands in the report’s top 100 list have beaten the S&P 500’s returns 357% to 245%.

Trading at 38 times free cash flow and with sales forecast to rise by 15% in the coming year, Mastercard looks like a top buy-to-hold investment thanks to these market-beating indicators and a budding VAS segment.

2. MercadoLibre’s fintech and credit units are just getting started

With seven in 10 Latin Americans still unbanked or underbanked, MercadoLibre’s fintech and credit operations have a long runway for growth. Operating primarily in Brazil, Mexico, and Argentina, MercadoLibre’s financial segment has quickly ballooned to account for 43% of the company’s total sales — quickly catching up to its more famous e-commerce business.

A natural complement to the company’s core e-commerce operations, Mercado Pago (fintech business) and Mercado Credito (credit cards, consumer loans, and merchant loans) serve both merchants and customers. Growing sales by 48% (currency neutral) in the second quarter, these units continued their rapid expansion despite management reining back the total credit it was lending out as a precautionary measure. Due to this prudent approach to its lending unit, its credit portfolio grew by 21%.

However, as management waits to gather more data to see how well these loans mature with time, MercadoLibre’s total payment volume (TPV) generated by its fintech unit increased by 97%. While this figure alone is magnificent, the TPV off MercadoLibre’s e-commerce platform stole the show, spiking by a stunning 129%. This rapid increase in adoption outside of MercadoLibre’s online shopping service is particularly noteworthy because it shows a tremendous appetite from its customers to use the company’s financial services in their daily lives.

In addition to this blistering use off-platform, MercadoLibre saw a 195% rise in assets under management as customers poured into its investment products, receiving healthy returns on money markets. Highlighting this point, the company’s retail money market became the largest in Argentina as users flocked to the investment product to battle against the country’s triple-digit inflation rates.

Thanks partly to this stunning fintech growth, MercadoLibre is back near its highs on the year after rising 65%. However, with analysts expecting 34% revenue growth in the coming year, the company’s price-to-sales ratio of 5.9 still looks enticing.

Data source: YCharts

Trading below historical averages, this valuation gives investors a promising entry point to buy and hold a business with ambitions to bring financial services to the underbanked Latin American communities.

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Josh Kohn-Lindquist has positions in Mastercard and MercadoLibre. The Motley Fool has positions in and recommends Mastercard and MercadoLibre. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.

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