2 Top Growth Stocks to Buy Before the Next Bull Market

It’s important to invest money on a regular basis because no one actually knows how the stock market will perform during any given year, let alone a specific day or week. Stocks rise and fall in response to countless variables, but investing on a fixed schedule can help normalize the market’s inherent volatility. That principle is known as dollar-cost averaging.

With that in mind, whether the next bull market starts tomorrow or three years from now, now looks like a good time to start building positions in MercadoLibre (NASDAQ: MELI) and DigitalOcean (NYSE: DOCN).

Here’s what you should know.

1. MercadoLibre

MercadoLibre brands itself as the largest online commerce and payments ecosystem in Latin America, a region primed for rapid economic growth. That success stems from its first-mover status and its robust offering of value-added services, like fulfillment and logistics, business and consumer lending, and digital advertising.

Much like Amazon, MercadoLibre simplifies commerce for sellers, forming the foundation of a resilient network effect. Each new seller creates value for every buyer by bringing more inventory to the marketplace, and each new buyer creates value for every seller by bringing more purchasing power to the platform. That virtuous cycle has fueled impressive financial results. Revenue rocketed 69% to $7.9 billion over the past year, and the company posted a GAAP profit of $3.67 per diluted share, up from a loss of $0.31 per diluted share in the prior year.

Those results are undoubtedly solid, but investors need to dig a little deeper to understand why MercadoLibre is well-positioned to maintain that momentum. In the first quarter, its managed logistics network handled 91% of shipping volume, up from 80% in the prior year. Its credit portfolio quadrupled in value, and total payment volume soared 72% to $25.3 billion. In other words, merchants and consumers are adopting more value-added services, making its marketplace and fintech platform stickier. That means switching costs are rising because each additional service makes it harder to cut ties with MercadoLibre.

Going forward, the company still has plenty of room to grow. Across its five largest geographies, e-commerce spending will reach $210 billion by 2025, and digital payments volume will hit $360 billion by 2026, according to Statista. As the market leader, MercadoLibre should benefit greatly from those trends. That’s why this monster growth stock belongs in your portfolio.

2. DigitalOcean

DigitalOcean democratizes cloud computing. Vendors like Amazon offer an extensive number of cutting-edge services, but those products are designed for larger enterprises — the kind of organizations with plenty of IT support. Unfortunately, 43% of small- and medium-sized businesses (SMBs) lack full-time IT support, which makes cloud adoption difficult.

With that in mind, DigitalOcean aims to simplify cloud computing with an intuitive user interface and 24/7 customer and technical support. Those features make it possible to deploy infrastructure and platform services in minutes, without any formalized training, which means SMBs can quickly build and scale web and mobile applications.

Of course, DigitalOcean’s portfolio is nowhere near as robust as Amazon’s, but its products address an overlooked niche in the market. Additionally, rivals are unlikely to target that niche, simply because it wouldn’t be worth their effort. The average DigitalOcean customer spent only $69 in the past year, which wouldn’t put a dent in Amazon’s top line.

However, DigitalOcean is a much smaller business, and its value proposition for SMBs has led to solid financial results. Its custom base jumped 6% to 623,000 over the past year, and the average customer spent 17% more, demonstrating the stickiness of its platform. In turn, revenue climbed 36% to $462 million, and free cash flow flipped into positive territory, coming in at $33 million, up from a loss of $35 million in the prior year.

DigitalOcean is bringing new products to market quickly, and that should help the company maintain its momentum. For instance, it recently introduced DigitalOcean Functions, a serverless platform that allows developers to write code and scale applications without worrying about the backend infrastructure. The company also made a number of add-ons available through the DigitalOcean Marketplace. Add-ons are software products that bring functionality like monitoring, security, and automatic backups to DigitalOcean’s cloud platform.

Looking ahead, the company puts its addressable market at $145 billion by 2025. That leaves a long runway for growth, and it’s why this stock is a smart buy before the next bull market.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon and MercadoLibre. The Motley Fool has positions in and recommends Amazon, DigitalOcean Holdings, Inc., and MercadoLibre. The Motley Fool has a disclosure policy.

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