3 growth stocks to buy before the next bull market
The market has always acted in cycles; A gradual upward march, followed by a sharp transverse depression. It is possible that the current market misery will eventually end in a new high, just as it often did before.
Growth stocks tend to do well in bull markets and can take the whooping shouts of Wall Street in bear markets. But quality companies will recover and go to new heights. Here are three growth stocks that are poised to soar to new heights when the new bull market finally begins.
1. Tech giant for sale
Amazon (AMZN) It is best known for its e-commerce business, which accounted for 41% of US online market sales in 2021. Amazon has become a conglomerate with thriving sectors such as Amazon Web Services (AWS), media streaming, and advertising.
You can see in the chart below how the stock’s price-to-sales (P/S) ratio has fallen to its lowest level since 2016, the lowest in several years. The e-commerce business, which is characterized by price competition and requires constant investments in the execution and supply chain, represented 84% of total revenue at that time. This decreased to 73% in 2021, as a result of these new segments contributing more to the company.
It may be fair to reward Amazon with a higher rating if this trend continues. AWS was responsible for all of Amazon’s operating profit for the first quarter of 2022, even though it represented only 15% of revenue.
Amazon is currently working through higher costs in its e-commerce business, and market sentiment is rock bottom. But Wall Street can appreciate Amazon’s nascent advertising business and its continued power from AWS as catalysts to lift stocks through the next bull market.
2. The second leading company in the field of e-commerce
Shopify (a store) It has been instrumental in the long-term growth of e-commerce. Software as a Service (SaaS) enables any person or business to quickly build and run an online store. Amazon may be the goliath of e-commerce, but Shopify’s Army of Davids, including nearly 1.75 million merchants, adds up to about 10% market share of online sales in the US
Businesses evolve over the course of their lives, and Shopify is no exception. The department is currently focused on building the fulfillment portion of its ecosystem to provide two-day shipping to 90% of the US population and a simple product returns system. Shopify has bought logistics company Deliverr for $2.1 billion and is investing heavily in developing its nationwide network.
Shopify should successfully build its own fulfillment network, and the current uncertainty has put investors off in a volatile market. Below you can see that the P/E ratio has fallen to its lowest level since the company went public.
It’s a risk when a company has to do something new, but the stock’s roughly 80% drop from highs is a huge discount that arguably makes up for the extra uncertainty. Mr. Market tends to be an extreme, often overreacting to ups and downs. The next bull market can lead to significant investment returns if Shopify is successful in its execution plans.
3. This beverage company can revitalize your wallet
Centennial collectibles (CELH) is an energy drink company whose products target the active consumer with natural ingredients, and claim that their formula helps boost metabolism when used in conjunction with exercise. Anything in drinks is a fierce competitor, but finding a niche to exploit can be one way to get around that. As of this writing, the best-selling energy drink on Amazon is a Celsius product, so the sales momentum looks good.
Distribution is the key to increasing sales of any physical product. Celsius has built its market footprint up to over 140,000 points of sale through supermarkets, convenience stores, gyms, drug stores and even the military. As a result, the company’s revenue has boomed, growing at an average rate of 74% over the past five years.
Below you can see how the P/E ratio per share has fallen from its highs when the market peaked in late 2021, but it has remained well above pre-pandemic levels. The company burned cash during the past year with free cash flow of $77 million as a result of investments to grow the company and higher input costs due to inflation.
Celsius has approximately $25 million in cash on its balance sheet, so management may be seeking to raise funds soon. However, there is currently no debt on the books, so the company has a stable financial floor. Assuming inflation subsides at some point, investors can see net profit percentage improvement and stock bounce during the next bull market.
John Mackie, CEO of Whole Foods Market, an Amazon company, is a member of The Motley Fool’s Board of Directors. Justin Bob has no position in any of the mentioned stocks. Motley Fool has positions at Amazon and Celsius Holdings, Inc. And Shopify recommends. Motley Fool recommends the following options: long January 2023 calls at $1,140 on Shopify and short January 2023 calls at $1,160 on Shopify. Motley Fool has a disclosure policy.