3 Growth Stocks to Buy Before the Next Bull Market – The Motley Fool | Region & Cash

The market has always traded in cycles; a gradual march higher followed by an occasional sharp decline. It’s likely that our current market woes will end in a new rally at some point, just like many times before.

Growth stocks typically do well in rising markets and can take a whooping cough from Wall Street in falling markets. But the quality companies will recover and set new highs. Here are three growth stocks poised to soar to new highs when the new bull market finally begins.

1. A tech giant on sale

Amazon (AMZN -1.77%) is best known for its e-commerce business, which accounted for 41% of online sales in the US market in 2021. Amazon has grown into a conglomerate with thriving segments like Amazon Web Services (AWS), media streaming, and advertising.

In the chart below, you can see how the stock’s price-to-sales (P/E) ratio has fallen to its lowest since 2016, a multi-year low. The e-commerce business, which is competitively priced and requires constant investment in fulfillment and supply chain, accounted for 84% of total sales at the time. In 2021, that dropped to 73%, reflecting these newer segments contributing more to the business.

It might be fair to reward Amazon with a higher rating if this trend continues. AWS was responsible for all of Amazon’s operating profits in the first quarter of 2022, even though it only accounted for 15% of sales.

AMZN PS Ratio data from YCharts

Amazon is currently working its way through higher costs in its e-commerce business and market sentiment is rock bottom. But Wall Street may come to appreciate Amazon’s burgeoning advertising business and AWS’s continued strength as catalysts to lift the stock during the next bull market.

2. The second largest e-commerce company

Shopify (SHOP -7.55%) has played an essential role in the long-term growth of e-commerce. Its Software-as-a-Service (SaaS) allows any person or business to quickly set up and run an online store. Amazon may be the goliath of e-commerce, but Shopify’s army of Davids, which includes roughly 1.75 million merchants, adds up to about 10% market share of U.S. online sales

Businesses evolve over their lifetime, and Shopify is no exception. Management is currently focused on building the fulfillment portion of its ecosystem to provide two-day shipping for 90% of the US population and a simple system for product returns. Shopify bought logistics company Deliverr for $2.1 billion and is investing heavily to develop its nationwide network.

Shopify needs to successfully build its fulfillment network, and the current uncertainty has turned investors off in a volatile market. You can see below that the stock’s price-to-earnings ratio has fallen to its lowest level since its IPO.

SHOP PS Ratio Chart

SHOP PS Ratio data from YCharts

It’s a risk when a company has to make something new, but the stock’s nearly 80% drop from highs is a significant discount that arguably offsets the added uncertainty. Mr. Market tends to be an extremist who often overreacts to the ups and downs. The next bull market could spark great investment returns if Shopify meets its fulfillment plans.

3. This beverage company can boost your portfolio

Celsius Holdings (CELH -5.94%) is an energy drink company whose natural-ingredient products target the active consumer, and it claims that its formula helps boost metabolism when used with exercise. Everything in beverages is highly competitive, but finding a niche to exploit can be a way to overcome this. As of this writing, the top-selling energy drink on Amazon is a Celsius product, so sales momentum seems healthy.

Distribution is the key to increasing sales of physical products. Celsius has expanded its market presence to more than 140,000 points of sale in supermarkets, convenience stores, gyms, drugstores and even in the military. The company’s revenue has thrived as a result, growing an average of 74% over the past five years.

Below you can see how the stock’s price-to-earnings ratio had fallen from its peak when the market peaked in late 2021, but it remains well above pre-pandemic levels. The company burned cash last year with free cash flow of minus $77 million due to investments to grow the company and higher input costs due to inflation.

CELH PS ratio chart

CELH PS Ratio data from YCharts

Celsius has about $25 million in cash on its balance sheet, so management could be looking to raise cash soon. However, there are currently no debts on the books, so the company is financially stable. Assuming inflation slows down eventually, investors could see Celsius’ bottom line improve and the stock bounce back during 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. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Celsius Holdings, Inc., and Shopify. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.

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