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3 Growth Stocks to Buy Ahead of the Next Bull Market

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3 Growth Stocks to Buy Ahead of the Next Bull Market

Markets always operate in cycles; gradually rising, followed by occasional sharp falls. It is likely that our current market woes will eventually end with a fresh rally, as it has so many times before.

Growth stocks tend to outperform in rising markets and can take a beating from Wall Street in falling markets. But quality companies will recover and continue to record highs. When the new bull market finally begins, these three growth stocks are poised to soar to new heights.

1. Tech giants are selling

Amazon (Amazon -1.77%) Amazon is best known for its e-commerce business, which will account for 41% of online sales in the U.S. market in 2021. Amazon has become a conglomerate with thriving areas 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 fell to its lowest level since 2016, a multi-year low. The e-commerce business was price-competitive and required continued investment in fulfillment and supply chain, which accounted for 84% of total revenue at the time. By 2021, that percentage drops to 73% as these new divisions contribute more to the company.

If this trend continues, it may be fair to reward Amazon with a higher valuation. AWS is responsible for all of Amazon’s operating profit in the first quarter of 2022, although it only accounts for 15% of revenue.

AMZN PS ratio data provided by YCharts

Amazon is currently struggling to overcome higher costs for its e-commerce business and market sentiment is subdued. But Wall Street may start to appreciate Amazon’s nascent ad business and AWS’ continued strength as catalysts to boost the stock during the next bull market.

2. Second largest e-commerce company

Shopify (shop -7.55%) It has played a vital role in the long-term development of e-commerce. Its Software-as-a-Service (SaaS) enables any individual or business to quickly build and operate an online store.Amazon may be the e-commerce giant, but Shopify’s Davids army, which includes about 1.75 million merchants, collectively accounts for about 10% of U.S. online sales

Companies evolve throughout their life cycles, and Shopify is no exception. Management is currently focusing on building out the fulfillment portion of its ecosystem, offering two-day shipping and an easy product return system for 90% of the U.S. population. Shopify bought logistics company Deliverr for $2.1 billion and invested heavily in growing its national network.

Shopify has to successfully build out its fulfillment network, and the current uncertainty is keeping 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 the company went public.

SHOP PS ratio table

SHOP PS ratio data for YCharts

It’s a risk every time a company has to do something new, but the stock’s nearly 80% decline from its highs is a deep discount that arguably makes up for the added uncertainty. Mr. Market tends to be an extremist, often overreacting to the good and the bad. If Shopify succeeds in implementing its fulfillment program, the next bull run could spark a huge return on investment.

3. This beverage company can breathe life into your portfolio

Celsius Holdings (CELH -5.94%) is an energy drink company that targets active consumers with natural ingredients and claims its formula helps boost metabolism while exercising. There’s a lot of competition in anything in beverages, but finding a niche that you can capitalize on could be one way to overcome that. At the time of writing, the best-selling energy drink on Amazon is the Celsius product, so sales momentum seems healthy.

Distribution is the key to growing sales of any physical product. Celsius has built a market footprint of over 140,000 points of sale through supermarkets, convenience stores, gyms, pharmacies and even the military. The company’s revenue has boomed as a result, rising an average of 74% over the past five years.

Below you can see how the stock’s price-to-earnings ratio has retreated from its highs at the end of 2021 when the market peaked, but remains well above pre-pandemic levels. The company burned through cash over the past year, with a negative free cash flow of $77 million due to investments to grow the company and higher input costs due to inflation.

CELH PS Ratio Chart

CELH PS ratio data provided by YCharts

Celsius has about $25 million in cash on its balance sheet, so management may be looking to raise capital soon. However, there is currently no debt on the books, so the company is on a solid financial footing. Assuming inflation subsides at some point, investors could see an improvement in Celsius’ bottom line and a rebound in shares during the next bull market.

John Mackey, CEO of Amazon subsidiary Whole Foods Market, sits on The Motley Fool’s board. Justin Pope has no positions in any of the aforementioned stocks. The Motley Fool has and recommends positions at Amazon, Celsius Holdings, Inc. and Shopify. The Motley Fool recommends the following options: a long $1,140 call on Shopify in January 2023, and a short $1,160 call on Shopify in January 2023. The Motley Fool has a disclosure policy.

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