Last year was rough for the stock market. And although this year has been measurably better, economic headwinds are still blowing, preventing investors from being as bullish as they might otherwise be.
A sustained bull market is coming sooner or later, though, and likely more sooner than later. We're now nearly two years removed from the beginning of 2022's bearishness. Its root causes have either abated, been addressed, or are being worked around. The foreseeable future looks brighter than the recent past.
Here's a look at three stocks to buy without any hesitation. All three underlying businesses are well positioned to benefit from a bull market and the economy that causes it.
1. EPR Properties
Consumers are spending as much as ever, but soaring costs for staples like food and grooming supplies are forcing people to spend less on discretionary goods and services.
Data from researcher Morning Consult indicates that nearly 80% of U.S. consumers have cut back this year on entertainment, home decor, and clothing outlays. More than half say entertainment, restaurant visits, and clothing top the list of things they're willing to go without.
But if a new bull market is at least partly rooted in a combination of falling prices and continued economic strength, it's arguable that demand for such goods and services will be the first to recover.
That's where EPR Properties (EPR -0.32%) could benefit. It's a real estate investment trust (REIT), meaning it's an easy way to own a bunch of rental properties.
EPR Properties is not your typical REIT, which usually hold properties like hotels, office buildings, or apartments. Rather, its specialty is entertainment. Water parks, movie theaters, ski lodges, casinos, and resort hotels make up the core of its holdings.
Like all other businesses, these entertainment venues have been hit hard by the recent wave of rising labor costs, higher utility bills, and the growing cost of supplies just to name a few. EPR Properties has held up reasonably well despite the challenging backdrop, but the economy has limited the company's opportunities for expansion.
During October's third-quarter earnings call, chief financial officer Mark Peterson said, " ... given our cost of capital in the current inflationary environment, we have consciously decided to limit our near-term investment spending."
Theme park operators and hotel chains aren't interested in committing to a new lease when the economy could still take a turn for the worse.
But despite months of chatter about a recession, one has yet to materialize. The world is instead easing its way back to economic prosperity, with the "soft landing" looking more and more like what we're seeing play out.
More important, EPR stands ready for this slow shift. As Peterson also noted during the conference call, "Over the next couple of years, given our low dividend payout ratio and modest debt maturities, we believe we can use excess cash flow, disposition proceeds, and some of our line capacity to increase investments a modest amount and still grow [funds from operations] as adjusted per share ... by around 4% each year while maintaining our targeted debt-to-adjusted EBITDA range of 5 to 5.6 times." Shares could start to perform well before the returns on that spending trickle down to the bottom line.
In the meantime you'll be stepping into a stock with a dividend yield of 7.2%. That's an above-average payout, while you wait for EPR Properties to reach its full-growth stride again.
2. C3.ai
There are several ways to tap into the artificial intelligence (AI) craze. C3.ai (AI 3.02%) is one of the best.
We've heard a lot about OpenAI's conversational AI platform ChatGPT, or Google's answer to it, called Bard. These consumer-facing uses don't represent the best of what AI can do, or how it can be commercialized.
C3.ai is taking this tech to the next level with AI solutions that matter to the biggest enterprises. Shell is using AI tools supplied by C3.ai to optimize its refining process, for example. The U.S. Air Force relies on C3's technology to make predictive maintenance recommendations, ensuring better aircraft readiness. Paper company Georgia-Pacific improved its efficiency by 5% using C3.ai, more than paying for the cost.
And this demand is bearing out in the company's numbers. C3's top line for the three-month stretch ending in July was up nearly 11% to $72.4 million, renewing a growth trend that had been stymied by last year's economic malaise.
AI revenue (quarterly); data by YCharts.
The analyst community believes this reacceleration will persist, calling for full-year sales growth of more than 15% for the fiscal year now underway, to be followed by nearly 20% revenue growth next year. Perhaps best of all, this growth should finally start chipping away at this company's losses, with a swing to a serious profit of $0.37 per share predicted for fiscal 2026 (ending in early calendar 2025).
There's plenty of reason to believe these bullish targets will be hit, too. An outlook from Precedence Research says the worldwide AI market will grow from last year's $454 billion to nearly $2.6 trillion in 2032.
3. Charles Schwab
Consider buying a stake in online brokerage The Charles Schwab Corporation (SCHW 0.13%) in anticipation of a new bull market. The stock is still down by one-third from its high reached late last year, but isn't likely to linger this low for much longer.
Schwab shares tumbled in March of this year following the liquidity crisis that ultimately caused the collapse of Silicon Valley Bank and First Republic Bank. Investors were understandably concerned that Schwab was in a similar predicament.
We now know this isn't the case: Schwab's balance sheet is fine. The broker's banking subsidiaries' total assets now stands at $341 billion, down a relatively modest 17% year over year and unlikely to shrink much more. The company's overall balance sheet is smaller too, contracting from $552 billion as of the end of last year to $475 billion as of the end of September largely due to the declining market value of the bonds, Treasuries, and other debt instruments on its books. That's manageable. Moreover, with interest rates now at or near a peak, the driving force behind these unrealized losses is losing steam.
The big challenge now is simply holding on to worried clients' assets. Its total customer bank deposits slumped another 28% during the third quarter, with many of those clients seeking out higher-yielding options.
A closer look at the details of the company's balance sheet, however, reveals that Schwab itself is that option for most of these clients. The amount held in higher-yielding money market funds with the company now stands at $436 billion, more than double the year-ago number of $211 billion.
While this migration pulled the broker's third-quarter net interest income down 23% year over year, the assets in question are still with Schwab. They can still be readily put to work in more lucrative ways (for Schwab) once the market firms up enough to draw investors all the way back in.
Chief Financial Officer Peter Crawford says this "cash realignment activity" is finally starting to slow down. The pressure on the company's net interest income (Schwab's top profit source) is easing up as a result.
Perhaps the biggest reason Schwab is such a strong name to own in the midst of a bull market is its second-biggest business: asset management and administration fees. These fees are tightly tethered to the overall market's value. And, the better the market performs, the more money investors put into (or back into) stocks or mutual funds. Both generate revenue for Schwab, although funds are the more lucrative asset for the broker.
