3 growth stocks that will rise significantly in the next bull market

It is basically impossible to determine when the next bull market will begin, but what is certain is that it will eventually come. But that doesn't say anything about when the markets will bottom. Fed Chairman Jerome Powell recently warned of future interest rate hikes, which will likely continue to push stock prices lower. But inflation will eventually start to return to the central bank's target and the economy will normalize. When that happens, these 3 stocks will be the winners of the next bull market.

Charging Bull

For more than a century, the S&P 500 $^GSPC-1.4% Index has weathered world wars, depressions, terrorist attacks and pandemics to deliver an average annual return of 9% with dividends reinvested. While there have been several bear markets during this time, none have knocked the U.S. stock market off its growth trajectory. Given that the average length of a bear market is only about nine months, the current market, which began in early January when the S&P 500 Index peaked, has already lasted about as long as a typical bear market.

1. Amazon: riding the wave of e-commerce recovery

Amazon $AMZN-2.6% has been one of the best-performing stocks of the last generation, but the company's recent returns have been less impressive. Year-to-date, the stock is down 30% and is down nearly 40% from its high last year. That decline has been fueled by valuation concerns, as well as slowing revenue growth and losses in its e-commerce division.

Revenues in the second quarter actually grew just 7% to $121.2 million, but the good news for investors is that top line growth is expected to accelerate in the coming quarters. Management is estimating 13% to 17% revenue growth in the third quarter, and comparisons will be easier from here on out as e-commerce growth began to decline in the second half of last year as the economy reopened.

Finally, Amazon's cloud computing division, Amazon Web Services (AWS), continues to grow strongly and appears to be the source of most of the company's value at the moment. In the second quarter, AWS saw a 33% increase in revenue to $19.7 billion with an operating margin of 29%.

When inflation cools and the next bull market begins, Amazon's e-commerce division will likely grow faster than it is today. AWS will be even bigger and investors will be willing to assign a higher multiple to growth stocks like Amazon.

AMZN stock price forecast

The following estimates are based on 38 Wall Street analysts offering 12-month price targets for Amazon over the past 3 months. The average price target is $176.79 with a most optimistic forecast of $270.00 and a negative forecast of $118.00. The average price target represents a 49.81% change from the last price target of $118.01.

2. PayPal: defensive growth driven by secular tailwinds

Like Amazon, PayPal $PYPL-0.9% was a big winner during the pandemic as consumer spending shifted online to channels like e-commerce. Recently, however, the company's growth has slowed as it faces difficult comparisons, causing the stock to take a loss. The stock is down 54% since the beginning of the year and more than 70% since its peak last year. Investors are now worried about the impact of the recession and fear that PayPal's slow growth rate could be the new normal.

For the third quarter, PayPal is on track to achieve its outlook of 10% revenue growth, or 12% growth excluding eBay (after the end of a long-term agreement between the companies). PayPal is also embarking on a cost-cutting plan to boost bottom-line growth, saving $900 million this year and $1.3 billion next year, in part by reducing its real estate and shifting recruiting to less expensive regions.

As a payments sector stock, PayPal is also cyclical; its business and share price should bounce off the bottom in the next bull market, as they will in most cyclical stocks. PayPal is now priced as an average stock with a price-to-earnings (P/E) ratio of just 22 based on this year's expected earnings per share, which is only slightly more expensive than the S&P 500 index. However, PayPal still has plenty of room to grow, and its earnings multiple should increase once investor confidence in the market returns.

PYPL stock price forecast

33 Wall Street analysts have issued 12-month price targets for Paypal Holdings in the last 3 months. The average price target is $119.86 with a high forecast of $160.00 and a low forecast of $93.00. The average price target represents a 31.54% change from the last price target of $91.12.

3. Carvana: the revolutionary online car dealer

Finally, here's one riskier investment. Indeed, few stocks have been as volatile as Carvana $CVNA-7.8%, a fast-growing online used car retailer. The stock jumped more than 1,000% during the pandemic before falling more than 90% again. The market seems to have bet that slowing growth, sky-high used car prices and a business model that hasn't yet turned a profit will drive the company into bankruptcy.

Buying cars is a cyclical business and Carvana is certainly sensitive to the macroeconomic climate, but in some ways it could also benefit from rising interest rates. Rampant inflation in the used car market has driven prices to record levels, and normalisation in this market would make it easier for Carvana to accurately price the cars it buys and sells. In addition, although rising interest rates are expected to cool demand for used cars, they create an opportunity for Carvana to make more money through its financial products.

To reassure investors that it can weather the bear market, the company laid off 12% of its workforce in May, which will help it cut costs and achieve its long-term goal. Carvana's stock is likely to languish as long as the bear market persists, as it faces a number of risks in the event of a recession, but these appear to have already been factored in as the stock trades at a price to earnings ratio of just 0.17.

If the company makes it through the next few quarters, the potential for growth in the next bull market could be huge as Carvana has a leading brand in the fast-growing online used car market. It will need to accelerate sales growth and watch costs again, but if it can do that, another multiple would not be a surprise.

CVNA stock price forecast

19 Wall Street analysts have covered Carvana stock in the last 3 months. The average price target for the next 12 months is $53.94 with an optimistic forecast of $100.00 and a negative forecast of $35.00. The average price target represents a 100.74% change from the last price of $26.87.

DISCLAIMER: All information provided herein is for informational purposes only and is in no way an investment recommendation. Always do your own analysis.


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