OK, so the folks at Cabot make it quite a habit to say “double your money in 2011 guaranteed” — that’s the promise they make when promoting each of their picks from the Cabot Stock of the Month newsletter, which is sold as a monthly “best of” selection from the stable of Cabot newsletters. Cabot’s letters run the gamut from sector-focused letters on energy and emerging markets to Ben Graham-style value, but the publisher’s core focus over the years has been on their own timing and charting systems that rely largely on growth and momentum, the backbone of the original Cabot Market Letter.

So though we sometimes see “undiscovered” and unprofitable small caps and deep value plays teased by Cabot, most of the time we see stocks that are, like the picks from other momentum and growth pickers like Louis Navellier or David Gardner, already setting the market on fire.

And yes, as with essentially all guarantees from investment newsletters, it’s a no-brainer for them — the guarantee, whatever it is (Cabot’s been using this “double your money” guarantee all year, and Navellier has sometimes even guaranteed that you’ll quadruple your investment, or see an even shorter term gain), is simply the “your money back” guarantee that essentially all newsletter publishers offer in one way or another — whether it’s for a trial period, or performance based, or just “satisfaction guaranteed, no matter what” from the most friendly refunders. That means that if the stock doesn’t double, or you’re not happy, or you’re within the refund period they offer, they’ll give you back your subscription money.

It does NOT mean that if you invested $10,000 in LDK back when this same Cabot letter pitched it in February as a guaranteed 2011 double, for example, that they’ll write you a check to cover the $4,000 or so drop in value of such an LDK position so far this year, or $14,000 (assuming LDK stays down at this level for the rest of the year) that it would take to give you a “double” on that position — it means they’ll pay you back the $49 you gave them to subscribe to the newsletter. That’s not to say this policy is wrong, I think it’s actually fairly reasonable even if we know that there’s essentially no chance that all the picks that they tout with the guarantee this year will double, but sometimes readers psychologically enlarge the meaning of these “guarantees” to mean that they “can’t lose” … so it’s a useful reminder: don’t think that newsletters — any newsletters — risk as much by guaranteeing a pick as you do by investing in it.

What, then, is this month’s guaranteed performer? Here’s a bit of the clue-ridden spiel:

“This online company is growing its sales and earnings at 33% and 45%, respectively, right under the noses of most U.S. investors south of the border in Latin America….

“… this Argentinean online triple-threat has not only become the ‘eBay of Latin America’ but also the ‘PayPal and Amazon of Latin America,’ too.

“As result, it has an almost impregnable market position as the leading online services company not only in Argentina but also throughout Mexico, Chile, Columbia, Ecuador, Peru, Uruguay, Costa Rica, Dominican Republic and Panama.

“And unlike many online companies in the U.S. that have only one source of revenue, this company hits it out of the park with three franchises responsible for generating a whopping $16 billion in annual sales, which we expect to swell to $36 billion by next year.

“That’s what makes my June Stock of the Month such a great play, with 33% sales growth, 45% earnings growth, $16 billion in revenues and a monopoly position that’s keeping U.S. competitors out….

“It’s not only the #1 online auction company in Latin America but also the #1 payments processor and online seller as well–with a wide moat that’s keeping competition out….

“Technically, the stock is pointing to another 300% profit potential in the next 24 months, having jumped 32% since March 18.”

So yes, as you’ve probably figured out by now (that “eBay of Latin America” is a dead giveaway if you’re an active market follower at all), this is teasing … MercadoLibre (MELI), one of the survivors of the internet boom and the leader in e-commerce in South America.

And yes, MELI is one of those “momentum” picks that come so often from Cabot and others — the stock briefly dipped under $10 during the worst days of the market crash in early 2009 and recently peaked out at over $90, though it has come back in a bit now. It is now, coincidentally enough, right near its previous bull-market peak in late 2007, with a share price of about $78.

The company is profitable, and is growing, so that’s certainly something in the “plus” column — they are indeed a very eBay-like business, built on a similar platform though much more reliant on fixed-price sales (so in that way they’re a bit more Amazon-like, though the website and service don’t appear to be nearly as sophisticated as Amazon’s), and, like eBay with PayPal, they have their own payment processing system (MercadoPago).

The e-commerce universe is still much less entrenched and vibrant in Argentina, Brazil, Uruguay, Mexico and MELI’s other countries — as is the credit card and online payments culture. That means that in a lot of ways MELI has similarities to classified listings too, with a lot of the transactions consummated in person and in cash, so there is certainly potential for growth if, as is expected, MercadoPago takes off as a bigger part of the business — they clearly do a lot of things to encourage this, including advertising items in Brazil, for example (where consumer credit is more entrenched than some other latin american countries), with both an up front price and a “12 easy payments” price using credit card systems.

And the growth has been quite steady, with impressive improvement in margins over the years to go along with a pretty consistent rate of revenue growth and new user signups. They also do get the benefit of eBay’s experience, since eBay still owns (I think) just under 20% of the company (from what I remember, they essentially exchanged their flagging eBay Brasil business for a stake in MELI years ago, and they appear to have offered some management and technical expertise along the way). You’d have a hard time classifying MELI as “cheap,” but if you think the growth rate is sustainable they are probably reasonably priced — the stock trades at about 46X this year’s expected earnings and 35X next year’s projections, but is also expected to see earnings growth of at least 30% annually (according to the analysts, at least). MELI has beaten earnings estimates in each of the last four quarters, though they’ve mostly been pretty close to expectations.

So it’s a good business, consistently profitable even during the global recession, and it’s active in most of the biggest economies in Latin America with an entrenched position that would be hard for someone else to usurp — like eBay before Amazon started encroaching on their business, MELI is the beneficiary of one of my favorite business influences, the “network effect.” The more customers who use MercadoLibre, the more businesses want to sell there; and the more businesses who sell there, the more customers are attracted to the platform. As we saw with so many failed auction and classified sites, even ones with big backers and high traffic like Yahoo Auctions when it went up against eBay, it is very, very hard to break that cycle and take business away from an entrenched operator.

That doesn’t mean they can’t lose business to others — Amazon is certainly hurting eBay here in the U.S., and Amazon does have a fair amount of customers in some Latin American markets without even trying very hard (they offer limited Spanish language sections of the site, and standard shipping to most Latin American countries takes three or four weeks), so it’s not beyond the realm of possibility that MELI will have to step up investment to hold their position in the future, though I expect a big e-commerce competitor would have to come either from a big international player like Amazon or Wal-Mart or from a local bricks-and-mortar chain. I expect they’ll also have to continue to push online transactions and direct shipping to keep their edge, since that online trust is not easily transferred to new competitors and MercadoPago and shipping brings far more convenience than you get from person-to-person classified sites like CraigsList or OLX. MELI is certainly big enough to spend if they need to, and they are continually trying new strategies to boost their listing and transaction volume, including free listings, but they do also have the challenge of operating in a dozen different countries with very different business climates, consumers, and regulations (which, again, could be an advantage if you consider the barriers to entry for new businesses).

I always have a hard time paying up for growth and momentum stocks, but I have been tempted by MELI a few times over the years without ever owning the stock — and I do think that the rise of consumerism in South America is a big story, particularly in Brazil but also in the smaller economies… and I’ll admit that I like it more after the 15% dip it’s taken this month as the market has weakened.

Do you think that MELI will double again in 2011? That would mean that you end up with a $7 billion stock with probably about $300 million in revenue — which is certainly possible, but that’s a really, really high premium (25X sales) over mature, low growth companies in the same business like eBay (which trades for about 4X sales and has a recent profit margin of about 20% versus MELI’s 26%).

If that growth potential is something you’re willing to pay up for, or if you think it’s ridiculous, let us know — that’s why we have that friendly little comment box below.